Disability Lump Sum Payment (1 Viewer)

[Tau837]

Related to previous thread from 2011, now archived.

My wife has been disabled since 1998, and it is permanent. She had a long term disability plan through her employer. Cigna is the carrier. Cigna applied for Social Security disability on her behalf and she eventually qualified, so she gets a SS check every month and Cigna's monthly payment was reduced accordingly.

Cigna pays her $980 per month and the terms of the policy are such that they will pay her that exact amount (it is not indexed for inflation) through age 65, which for her will be January 2036, assuming she lives to that date. So they stand to pay her $220,500 over that period.

This monthly payment is Cigna's only obligation. They will never have to pay any other expenses or increase the payment if we decline the lump sum payment.

Her Cigna benefit is not taxed, because she paid for her LTD policy with after tax dollars. So the lump sum payment would presumably not be taxed. (If it would be, it seems like an easy decision to decline the offer.)

Cigna has offered her a $90K lump sum payment to waive all future obligations. Their offer 6 years ago was $100K. We did not take the offer, and it seems that was the right decision, since they have paid her about $71K since that time, with payments continuing (ignoring the possibility that we could have invested that $100K in Amazon or something).

Cigna says they view the present value of their obligation to her as being worth about $150K, saying they are using an interest rate of 3.65% in their calculation. As before, they encourage us to consult an attorney and financial adviser and will even pay up to $250 in fees for that advice.

As much as I don't want to think about it, my wife may not live until 2036, and money now could be more valuable to her (e.g., to make her life more comfortable), though we have a reasonably comfortable lifestyle already. Unfortunately, my wife's health has declined considerably since we declined that offer 6 years ago. My wife didn't really give the offer serious consideration last time, and I think it was because she based her thinking on her health at that time without forecasting how it might decline. She was disabled then, but still much more mobile/functional. Now her life is 95% in bed and in constant severe chronic pain, and outside the house she is forced to use a wheelchair. It is a very different context within which to consider this offer.

Partly due to that context, it is possible the lump sum carries with it some intangible value that makes it worth more than just the dollar value. For example, we live with her parents and have been considering allowing them to buy us out and buying another house just for us. If we had an extra $90K, we could buy a nicer house. We live in the San Diego area, so housing is very expensive... At the same time, we are likely going to have to buy a new vehicle that is customized for her (e.g., with wheelchair lift) fairly soon. This money would make it easier to both buy a new house and buy the vehicle. Not saying we can't do one or both without the lump sum payment, but an extra $90K would make it much easier.

I will discuss with my financial adviser, but I know there are a lot of attorneys in the FFA, and perhaps some financial advisers as well. I would appreciate some advice on this situation, and I would especially like to hear from anyone who has experienced a similar situation. Last time, I got some great feedback from @shadyridr, @Deepster, and @Chaka in particular.

 

[BassNBrew]

Wishing you and your wife the best going forward.

Is there any chance you can buy a term life life insurance policy?  If you can get a $220,000 policy for less than $130,000 in premiums it seems like buying a policy and staying with the monthly disability payments would be the numbers way to go if you're trying to play this by the numbers.

That said, I really think this this comes down to two questions:  

Do you need the money monthly to maintain a lifestyle that is comfortable?  19 years is a long time and if you take the buyout, you're essentially going without funds for more than half that period.  If the worse case scenario were to happen, the reality is that your monthly expenses go down.

Does the lump sum provide you with something of value that you can't obtain any other way?  You mentioned a house and vehicle.  If that's the case, only you can put a value on these items for your family and it's no longer a math equation.

 

[[scooter]]

I don't like the idea of taking the lump sum and then using the bulk of it to buy a van and upgrade houses.

 

[shadyridr]

I'll respond more later. I'm a disability actuary working for a competitor of Cigna. The interest rate is spot on with ours right now. 

 

[Steeler]

No advice, just wanted to wish the best for you and your wife.

 

[Chaka]

Wishing you and yours the best brother.

I'm all over the map until tomorrow or Friday so I will respond more later.

My first question is what are plans for paying medical for your wife going forward? Medical, particularly prescription meds are going to be your most significant cost drivers and you need to consider them very strongly when deciding to take the payment and how you would use that money if you took it.

 

[Spin]

I'm sorry to hear about your wife's declining health. 

T&P for you and your family. 

 

[shadyridr]

I read my posts from the prior thread and dont have much else to add. It is entirely your own decision with whether or not a lump sum makes sense given your current circumstances. I will say (and I know nobody will believe me) that the insurance company is not trying to screw you with the settlement offer.

 

[KCitons]

No advice, just wanted to wish the best for you and your wife.

This. 

 

[Sand]

Certainly Cigna wants to define its obligation to you.  They see advantage in this, which is why they are offering it.

This is way too complicated and personal to give definitive advice, but I'll note two things - human nature is to burn money in hand.  There is an advantage to not having a lump sum.  Second, the 1k/month would easily cover a payment on a vehicle and still be paying after the vehicle is paid off.  

If you use that entire 90k to buy a car/house your breakeven is at 7.5 years or so (disregarding inflation, expected market returns, etc.).  You could use that as the benchmark to decide if this is a good deal for you.  

 

[MarvinTScamper]

I read my posts from the prior thread and dont have much else to add. It is entirely your own decision with whether or not a lump sum makes sense given your current circumstances. I will say (and I know nobody will believe me) that the insurance company is not trying to screw you with the settlement offer.

It's a math problem.  That's it.  The people making these statements are actuaries...who, almost by definition, make decisions without emotion.

You live long, you don't take the settlement.  You need the money badly up front, or want to use it, or think you can beat 3.62% return, you take it.

Personal decision.  Either one could be the wrong one.

 

[MarvinTScamper]

They see advantage in this, which is why they are offering it.

The only advantage is that they lock in their payout.  I think you're giving credit where it doesn't belong.  They manage risk, and some of that management is sealing off variable risk.

 

[Redwes25]

Want to give you and your wife my best.  My only advice is if you removed this $1,000 dollars immediately would you be in a difficult financial position?  If not I would lean towards taking it as you can get some use out of the immediate cash infusion to improve your wife's quality of life.  However, I wouldn't go that route if it would put you in a tough place once that money is gone.

 

[Tau837]

Wishing you and your wife the best going forward.

Is there any chance you can buy a term life life insurance policy?  If you can get a $220,000 policy for less than $130,000 in premiums it seems like buying a policy and staying with the monthly disability payments would be the numbers way to go if you're trying to play this by the numbers.

That said, I really think this this comes down to two questions:  

Do you need the money monthly to maintain a lifestyle that is comfortable?  19 years is a long time and if you take the buyout, you're essentially going without funds for more than half that period.  If the worse case scenario were to happen, the reality is that your monthly expenses go down.

Does the lump sum provide you with something of value that you can't obtain any other way?  You mentioned a house and vehicle.  If that's the case, only you can put a value on these items for your family and it's no longer a math equation.

Thanks, GB. I carry about $1.2M in life insurance on myself, so my wife should be in good financial shape if something happens to me, independent of this question.

We don't need the money to be comfortable, it would just make some things easier. As of now, this money is just deposited in my wife's checking account and accumulating; we are not using it to live on, which is what makes it potentially appealing to forego the payments for a lump sum, if we conclude the lump sum is enough to make that worthwhile.

That is why the question wasn't easy the first time and isn't easy now.

 

[Tau837]

No advice, just wanted to wish the best for you and your wife.

I'm sorry to hear about your wife's declining health. 

T&P for you and your family. 

Thanks, I appreciate these posts.

 

[Chemical X]

this is a disheartening post, so typical T & P go out.  that said, I don't think there is a right or wrong answer, sadly it may simply boil down to "life expectancy".  my only advise is if you take the lump sum, ear mark a certain amount as investable.  on 90k, maybe invest 50k into an IRA and use only the other 40k for ancillaries.  force yourself to not burn thru it.

 

[Tau837]

Wishing you and yours the best brother.

I'm all over the map until tomorrow or Friday so I will respond more later.

Thanks, GB.

My first question is what are plans for paying medical for your wife going forward? Medical, particularly prescription meds are going to be your most significant cost drivers and you need to consider them very strongly when deciding to take the payment and how you would use that money if you took it.

I should have said something about this. As of now, my wife is covered by my employer insurance (primary) and Medicare (secondary). She is entitled to Medicare via being on SS disability. This has been our situation for the past 16 years or so, and the combination has generally resulted in us not having to spend an extraordinary amount out of pocket despite multiple significant surgeries and long running expensive treatments and medications.

I am 48 and I assume I will not retire before 60, and maybe not until 65 or later. We should be able to afford me retiring at 60, but this issue may cause me to want to continue working so as to continue the employer based insurance.

My wife's care is expensive. We currently fly back to the East coast about twice per year (should be quarterly, but she typically can't make the trip that often) for treatments. Every time we go back costs us about $10K out of pocket. More importantly, she is on a lot of medications, and one of them in particular is extremely expensive - would be more than $10K per month retail. It is an annual battle to get it covered via insurance. We have always gotten it covered, but typically at the expense of going through a tense 2-3 month period where she is stretching it because we can't fill it consistently on time or for the right quantity. I assume this will only get worse going forward, not better, due to the Government's misguided war on the "opioid epidemic." Anyway, I digress...

If my wife lives to the point where I retire, the cost of healthcare is going to be an issue for sure, barring major changes in US healthcare. But the Cigna payments are going to run out when she reaches age 65, so I'm not sure if this is a deciding factor.

 

[Tau837]

Want to give you and your wife my best.  My only advice is if you removed this $1,000 dollars immediately would you be in a difficult financial position?  If not I would lean towards taking it as you can get some use out of the immediate cash infusion to improve your wife's quality of life.  However, I wouldn't go that route if it would put you in a tough place once that money is gone.

Thanks.

As I mentioned in a post after yours, this payment currently just feeds into my wife's checking account and accumulates. We do not live off that account. She has a couple of her own credit cards that she uses to order clothing, etc., and she pays for them out of that account. Nothing significant that would create difficulty if the payments stopped. This is what makes it tempting to take a lump sum payment.

 

[Cjw_55106]

Personally, I take the money now. As you stated, her health has declined considerably in 6 years. She would have to be collecting 7.5 years from now for you to gain a financial advantage. Especially considering you dont "need" the money, the lump sum makes sense to me. 

 

[Tau837]

this is a disheartening post, so typical T & P go out.  that said, I don't think there is a right or wrong answer, sadly it may simply boil down to "life expectancy".  my only advise is if you take the lump sum, ear mark a certain amount as investable.  on 90k, maybe invest 50k into an IRA and use only the other 40k for ancillaries.  force yourself to not burn thru it.

This is definitely something to consider. I have a lot of our retirement money invested in a brokerage IRA that I manage. I am no expert by any means, but that overall portfolio has increased by about 105% over the past 6 years. So, had we taken the $100K lump sum 6 years ago and invested it in exactly the same way, it would be worth $205K today, ignoring tax implications.

 

[Dickies]

I am a financial advisor, and am quite familiar with disability insurance.  These settlement offers are not uncommon, and their offer to you sounds typical.  Every potential decision involves risk and it's up to you and your wife to decide which scenario makes the most sense.  

If you decline the settlement and she passes away in a week you would have obviously been better off with the settlement.  If health/longevity is a concern then the settlement offer becomes more favorable.  

If you are planning on taking the lump sum, the one piece of advice I will give you is to not blow it on a van and down payment on a house.  Since you are not reliant on the disability income and it just goes into savings anyways, this IMHO makes the settlement more feasible.  You could invest this money, potentially outpace the rate of return you would need to break even, and have a lump sum of money to cover emergency medical expenses.  Keep in mind that there is a risk you may not achieve a 3.65% return and this risk grows if you are forced to take withdrawals at inopportune times.

The safest play is to just continue taking the monthly payments.  As someone mentioned earlier, you could use the monthly payment on a modified van if she needed one and still have money left over.  If you do not need the monthly income then start investing the entire monthly payment (after you have built a proper safety net).  This is a safer way to invest than taking a lump sum and dropping it into something (especially given that the market is at all-time highs).

Not an easy decision to make, and I wish you the best.

 

[sbonomo]

I read my posts from the prior thread and dont have much else to add. It is entirely your own decision with whether or not a lump sum makes sense given your current circumstances. I will say (and I know nobody will believe me) that the insurance company is not trying to screw you with the settlement offer.

Out of curiosity is the settlement number negotiable?  I am sure they are offering to get it off their BS and to put a guardrail on their liability.  Some model that you run gives you an expected loss or payout so adjusting that will adjust the offer right?

ETA:  T&P to you and your family OP - My significant others farther just passed away after a long battle with cancer.  I know how hard it is to watch your loved ones dwindle away slowly.  I would not wish that on my worst enemy.  

 

[Juxtatarot]

I'm surprised that your wife seemingly doesn't have a strong opinion on this.

I'm also surprised that you're considering moving.  I would assume having her parents there could help in many ways.

 

[Sand]

The only advantage is that they lock in their payout.  I think you're giving credit where it doesn't belong.  They manage risk, and some of that management is sealing off variable risk.

Which is why I prefaced that with "Cigna wants to define its obligation to you."

Either way, JWB, I hope this works out for the best.  You're doing the right thing by carefully considering the ramifications of this offer.

 

[matttyl]

Thoughts and prayers to you both. 

As mentioned above, this becomes "easy" (mathematically speaking) if she's insurable for some amount ($100k+) of life insurance.  Given what you describe, though, that sounds like it's not the case. 

Personally, I've always been one to "take the money."  I also think of myself of a fairly level headed investor, though.  Assuming you take the $90k and invest it, getting 5%, you can take the same $980 a month for 9.7 years.  Should you be lucky enough to get 7% on it, you can do the same for 11 years.  In order to "guarantee" yourself the same 19 years you have now (assuming she lives to age 65), you'd have to get 11.6%, which is asking a lot. 

Someone above asked if this amount is negotiable.  If so, I'm sure there is some number that you'd accept, no questions ($150k).  Can you go back and say you want $110k for instance?  Would make short term medical expenses easier to deal with. 

 

[MarvinTScamper]

Which is why I prefaced that with "Cigna wants to define its obligation to you."

Either way, JWB, I hope this works out for the best.  You're doing the right thing by carefully considering the ramifications of this offer.

I wasn't really trying to disagree with that part.  It was the "advantage" part.  They don't see an advantage, they see mitigation/absolution of risk.  But, either way, we both agree they need to consider both, and that we hope for the best.

 

[Funktrain]

Just did this last year with the wife (same company, Cigna).  Yes the number is negotiable somewhat, we got them to add another 2.5K to the offer.  Your not going to get 10's of thousands, but they appear to be able to move it slightly, if you are going that route, be sure to ask, it can't hurt.

For what its worth, we took the offer to not have to deal with them anymore (she was on the plan for many years, and then they denied her for a year as one of her doctors filled out the form incorrectly, which we then had to appeal, yada yada yada).  

Will be investing a good portion of this and keep the rest in the emergency fund.

Hope this helps.

 

[BassNBrew]

Personally, I take the money now. As you stated, her health has declined considerably in 6 years. She would have to be collecting 7.5 years from now for you to gain a financial advantage. Especially considering you dont "need" the money, the lump sum makes sense to me. 

I've thought about this a little further and would probably take the money.   If you do this the only way you lose financially is if she lives a long life. In that case I wouldn't consider it losing but winning in a big way. 

 

[Tau837]

Not an easy decision to make, and I wish you the best.

ETA:  T&P to you and your family OP - My significant others farther just passed away after a long battle with cancer.  I know how hard it is to watch your loved ones dwindle away slowly.  I would not wish that on my worst enemy.

Either way, JWB, I hope this works out for the best.  You're doing the right thing by carefully considering the ramifications of this offer.

Thanks for these posts, I appreciate all prayers and positive thoughts in addition to the advice. Sorry to hear about your SO's father, @sbonomo.

 

[Tau837]

I'm surprised that your wife seemingly doesn't have a strong opinion on this.

Well, this is part of how I am going to form my strong opinion. If my strong opinion is not the same as hers, her strong opinion will win. 

I'm also surprised that you're considering moving.  I would assume having her parents there could help in many ways.

This is true, they are a huge help. But the many pros come with associated cons, like lack of privacy and independence (e.g., inviting friends/family over for dinner, etc.). We have decided it would be preferable to live in two separate homes that are not far apart, which should give us most of the pros while eliminating the cons. Of course, it adds a new con of being more expensive in various ways.

Also, her parents are in their 70s, and it is only a matter of time before we will no longer be able to rely upon them without outside assistance anyway. And they may need care of their own soon enough.

 

[Tau837]

Just did this last year with the wife (same company, Cigna).  Yes the number is negotiable somewhat, we got them to add another 2.5K to the offer.  Your not going to get 10's of thousands, but they appear to be able to move it slightly, if you are going that route, be sure to ask, it can't hurt.

For what its worth, we took the offer to not have to deal with them anymore (she was on the plan for many years, and then they denied her for a year as one of her doctors filled out the form incorrectly, which we then had to appeal, yada yada yada).  

Will be investing a good portion of this and keep the rest in the emergency fund.

Hope this helps.

Thanks for posting. I remember that we had a PM exchange when you were considering, and wondered what you had decided. It does help to know that some others in the same situation found it beneficial to take the lump sum, and it really helps to know about your negotiation.

 

[Tau837]

I've thought about this a little further and would probably take the money.   If you do this the only way you lose financially is if she lives a long life. In that case I wouldn't consider it losing but winning in a big way. 

This is an excellent post and I agree 100%.

 

[matttyl]

Also, the income stream is only there while Cigna is around, correct?  I understand that they are a huge company and have been around for many years.  But you never know.  A bird in the hand and all that....

 

[Tau837]

Also, the income stream is only there while Cigna is around, correct?  I understand that they are a huge company and have been around for many years.  But you never know.  A bird in the hand and all that....

I commented on that in the thread six years ago and others replied to say that shouldn't be a concern, because they are required to set aside funding for all claims or something similar.

 

[shadyridr]

I commented on that in the thread six years ago and others replied to say that shouldn't be a concern, because they are required to set aside funding for all claims or something similar.

Yes every active disability claim has a reserve set aside on their books. This is the liability they are trying to get rid of. The present value they told you is what they are required to put aside.