Disability Lump Sum Payment (continued) (1 Viewer)

[Tau837]

Posted this thread more than 9 years ago, now archived: Disability Lump Sum Payment.

I just reread it, and want to again express my appreciation for everyone who posted in it. I dug it up because Cigna just sent another offer.

My wife did not take their offer last time, and we never engaged them about it in any way, just ignored it. She has received $108,780 since their initial offer of $100K, and the payments continue. So it was clearly a good decision. Now they have sent a letter stating their view that the present value of her claim is $109,571 and offered her a lump sum of $81K.

If she lives to age 65 and we do nothing, she will collect another $182K. Cigna used a discount rate of 3.65% in their calculation... using an annuity calculator on the internet and applying that rate shows the present value as $139K. Their letter says they incorporate mortality, morbidity, and interest rate assumptions into their calculation of present value, so I assume that is the difference between the $139K and their assessed value of $109.6K.

As discussed last time, we could seek to negotiate, but we are inclined to ignore this one also.

The only thing that mildly interests me now is the idea of taking the lump sum and putting it into the market. If the present value of her claim is roughly $110K spread over just over 15 years (she turns 65 in January 2036), it seems likely that $81K invested would beat that. All that would require is an annual return of just over 2%. Plus, we could seek a higher number in negotiation.

I suppose I should figure out to compare that against investing the monthly $980 in the market for the next 15 years.

Thoughts?

 

[Slapdash]

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[huthut]

Posted this thread more than 9 years ago, now archived: Disability Lump Sum Payment.

I just reread it, and want to again express my appreciation for everyone who posted in it. I dug it up because Cigna just sent another offer.

We did not take their offer last time and never engaged them about it in any way, just ignored it. So she has received $108,780 since their initial offer of $100K, and the payments continue. So it was clearly a good decision. Now they have sent a letter stating their view that the present value of her claim is $109,571 and offered her a lump sum of $81K. As discussed last time, we could seek to negotiate, but we are inclined to ignore this one also.

The only thing that mildly interests me now is the idea of taking the lump sum and putting it into the market. If the present value of her claim is roughly $110K spread over just over 15 years (she turns 65 in January 2036), it seems likely that $81K invested would beat that. All that would require is an annual return of just over 2%. Plus, we could seek a higher number in negotiation. Any thoughts on that?

From people more knowledgeable about finance than myself I heard that it is better to take the lump sum for the reasons that you stated, where if you invest it you would make more money than the raw difference in dollar amount. I heard the same argument about not buying points for a mortgage as well, money in your hand is more valuable than slightly more money in the future, even if you do not need the money immediately. 

 

[Deepster]

Lump sum payments are offered for a few reasons.  One reason is it counts as a "closed claim".  Disability carriers boast about their ability to close claims successfully.  Most times, that would be rehabilitating the employee and getting them back to their job.  If your wife doesn't look like she's going back?  This is a way of closing it and making it "look like" she is no longer disabled.  That what this sounds like to me.

If it were me?  Seeing how the original offer was 100k and you've already collected beyond that, you made the right choice.  Now you'd be taking the guaranteed 81k today over a maximum payout of 115k over 15 years.  If you think you can make that money work to stretch it to 2036 and more than 115k yourself?  No brainer.  Last offer, you had a lot more time to continue to get payouts.  Here?  You're capped at 15 more years max.  And I would think that another 5-10 years, they'd just wait for it to run out at that point and the reserve money held would be 40-50k which is not significant.

 

[stbugs]

Posted this thread more than 9 years ago, now archived: Disability Lump Sum Payment.

I just reread it, and want to again express my appreciation for everyone who posted in it. I dug it up because Cigna just sent another offer.

My wife did not take their offer last time, and we never engaged them about it in any way, just ignored it. She has received $108,780 since their initial offer of $100K, and the payments continue. So it was clearly a good decision. Now they have sent a letter stating their view that the present value of her claim is $109,571 and offered her a lump sum of $81K.

If she lives to age 65 and we do nothing, she will collect another $182K. Cigna used a discount rate of 3.65% in their calculation... using an annuity calculator on the internet and applying that rate shows the present value as $139K. Their letter says they incorporate mortality, morbidity, and interest rate assumptions into their calculation of present value, so I assume that is the difference between the $139K and their assessed value of $109.6K.

As discussed last time, we could seek to negotiate, but we are inclined to ignore this one also.

The only thing that mildly interests me now is the idea of taking the lump sum and putting it into the market. If the present value of her claim is roughly $110K spread over just over 15 years (she turns 65 in January 2036), it seems likely that $81K invested would beat that. All that would require is an annual return of just over 2%. Plus, we could seek a higher number in negotiation.

I suppose I should figure out to compare that against investing the monthly $980 in the market for the next 15 years.

Thoughts?

I don’t mean to be rude, but if you are thinking about it for investing, you should have taken the lump sum. There’s lots of ways to beat the market but if you just put that money in the S&P 500 low cost fund 9 years ago to the day (6/13/2011 was the trading day), it would be worth $239k, way more than what you received. That’s why people mention taking lump sums.

Even if let’s say you ended up needing cash and used 50k of it, you’d still have $120k left over instead of $58k (spending the same $50k).

If you didn’t need the money, the lump sum would have been the best way to go.

 

[Tau837]

I don’t mean to be rude, but if you are thinking about it for investing, you should have taken the lump sum. There’s lots of ways to beat the market but if you just put that money in the S&P 500 low cost fund 9 years ago to the day (6/13/2011 was the trading day), it would be worth $239k, way more than what you received. That’s why people mention taking lump sums.

Even if let’s say you ended up needing cash and used 50k of it, you’d still have $120k left over instead of $58k (spending the same $50k).

If you didn’t need the money, the lump sum would have been the best way to go.

I don't take this as rude at all. Agree that in hindsight we could have made a lot more money by taking the original lump sum offer.

9 years ago we were in a different place in our lives. We were living a comfortable lifestyle and didn't need the money, but also not as likely to invest $100K in the market. I don't know that we would have taken the lump sum and promptly invested it all in the market; we might have used it for a downpayment on a house, maybe used some to buy a new car, put a good amount into our money market account, etc. Lord knows I have made plenty of poor financial decisions in my life and only in recent years have I started making more of the right decisions.

Regardless, that is hindsight. I'm thinking pretty seriously in this situation about negotiating for a larger lump sum and taking it now to invest. I will have to talk my wife into it, as she probably has a false sense of what the security of payments over the next 15 years means compared to alternatives.

Thanks for posting.

 

[Thorpe]

If you invest the money "safely" then you won't make much from it due to low interest rates.

If you can afford to take the normal amount of risk that comes with the stock market, then the lump sum will most likely work out the best for you.

If you are the kind of person that spends every cent they have the bank immediately, then the lump sum is a bad idea (long term at least, short term it would be a lot of fun to spend the money)

 

[Jules Winnfield]

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