{"id":352953,"date":"2016-04-04T10:46:35","date_gmt":"2016-04-04T15:46:35","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/injury\/accident-injury-law\/lump-sum-disability-insurance-buyouts-overview.html"},"modified":"2025-11-11T16:09:57","modified_gmt":"2025-11-11T21:09:57","slug":"lump-sum-disability-insurance-buyouts-overview","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/injury\/accident-injury-law\/lump-sum-disability-insurance-buyouts-overview.html","title":{"rendered":"Should I Take a Lump-Sum Disability Insurance Buyout?"},"content":{"rendered":"\n
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Should I Take a Lump-Sum Disability Insurance Buyout?<\/h1>\n\n
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\n By Ty McDuffey, J.D.<\/a> | Legally reviewed by Katrina Wilson, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

The answer is complicated, but it\u2019s important to make an informed decision<\/span>. A disability insurance<\/span> “buyout<\/span>,” or “settlement,” is a one-time lump-sum<\/span> payment<\/span>. Accepting a buyout<\/span> means your monthly benefits<\/span> would end in exchange for one large payment.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

An insurance company<\/span> may send an individual policyholder an offer to buy out<\/span> the life of their policy or long-term <\/span>disability<\/span> claim<\/span>. The deal has potential benefits and drawbacks.<\/p>\n

If you agree to a lump-sum<\/span> buyout<\/span>, you extinguish your rights under the policy. You\u2019ll no longer have a disability claim<\/span> for which you\u2019ll receive disability insurance<\/span> benefits.<\/p>\n

A disability insurance<\/span> buyout<\/span> may benefit you in the short term. But it could be to your detriment if the payout<\/span> undervalues your policy\u2019s future benefit<\/span>.<\/p>\n

Disability insurance<\/span> claims<\/span> can be a lifeline when you can\u2019t work due to a health condition<\/span>. A disability lawyer<\/span><\/a> can review the settlement offer to make sure you get a fair amount.<\/p>\n

Why Did the Insurance Company<\/span> Offer a Buyout<\/span>?<\/h2>\n

Typically, an insurance company<\/span> may offer a disability claim<\/span> settlement when it believes doing so will ultimately save the company money. Insurers consider many costs and factors when determining whether to buy out<\/span> a policy. Sometimes, the reason may be as simple as avoiding the administrative costs of managing future <\/span>claim<\/span> benefits<\/a> over the life of the policy.<\/p>\n

By accepting, you\u2019d release the insurance company<\/span> from any further obligations under the policy. You\u2019ll no longer have any rights against the insurance company<\/span>.<\/p>\n

A buyout<\/span> can be a win-win scenario in some cases. Yet, you\u2019ll need to weigh the value of the up-front<\/span> lump sum<\/span> against your ongoing and future needs with disability<\/a>. Insurance buyouts<\/span> are optional, but you can\u2019t reverse your decision once you accept.<\/p>\n

Why Consider A Lump-Sum<\/span> Buyout<\/span>?<\/h2>\n

There are many reasons to consider a buyout<\/span>. All are unique to your financial situation. Carefully consider such an important decision.<\/p>\n

The Ability to Invest Your Lump-Sum<\/span><\/h3>\n

A lump-sum<\/span> buyout<\/span> is often tax-free, but not always (consult a professional about tax implications<\/a>). It allows you to invest the sum of money any way you see fit.<\/p>\n

Rather than waiting for monthly payments from long-term <\/span>disability<\/span><\/a> insurance<\/span> companies<\/span>, you could use the buyout<\/span> money to enlarge your retirement savings. Or you could make a financial investment that may bring large gains in the future.<\/p>\n

You may want to enter into a new business. You may want to invest in new skills that don\u2019t conflict with your disability and medical conditions. If you have children, you can invest in their future by\u00a0paying for college tuition<\/a>.<\/p>\n

Security and Peace of Mind<\/h3>\n

Lump-sum<\/span> buyouts<\/span> can offer extra security for your family. As opposed to\u00a0life insurance policies<\/span><\/a>, disability <\/span>insurance<\/span> policies<\/span> may not provide rights of survivorship.<\/p>\n

Many insurance companies<\/span> deny disability benefits<\/span><\/a> after a period of time. A long-term disability<\/span> policy<\/span> often specifies the duration. After an initial period of receiving benefits because you cannot work at your “own occupation,” some providers allow you to continue getting benefits only if you cannot work at “any occupation.” This detail might reduce your disability payments.<\/p>\n

A lump-sum<\/span> settlement<\/span> means the insurance company<\/span> can\u2019t deny your benefits or terminate your claim. If you negotiate a buyout<\/span>, you\u2019ll no longer have to submit supporting documentation from medical professionals to prove your need for long-term <\/span>disability<\/span> benefits<\/span>.<\/p>\n

Reasons to Reject a Lump-Sum<\/span> Buyout<\/span><\/h2>\n

While there are many reasons to accept a buyout<\/span> offer<\/span>, there are also reasons not to take one. Continuing your policy might be more beneficial in certain cases.<\/p>\n

For example, rejecting the lump sum<\/span> may be favorable if all of the following apply:<\/p>\n