Disability Insurance Claim Advice
Secrets of a Claim Buyout
California Broker, March 2008
By Art Fries
The following are the two most important ingredients of a disability claim buyout:
1. Fact gathering from the claimant by someone who is well versed in disability claims, a disability claim consultant.
2. The negotiating skills of an actuary who can communicate effectively with the insurance company’s actuary.
Here are some items to be asked of the claimant and to be considered by the consultant:
1. Male or female.
2. Date of birth.
3. Monthly benefit at the beginning of a claim.
4. Monthly benefit currently.
5. Benefit period (to 65 or for life.)
6. Medical symptoms.
7. Prior occupation.
8. Total or partial disability claim.
9. Definition of disability currently. Any change expected in the future and, if so, the date.
10. Whether COLA is included. Whether it levels off at age 65 or continues (if the claim is paid for life).
11. If COLA is included, what the maximum or minimum percentage is.
12. The date the disability claim began.
13. The dollar amount that the insurance company is offering.
Why an Actuary?
Actuaries speak the language of actuaries. Those who are experienced in disability claims know how to work with the appropriate numbers based on the information secured by the consultant. In addition, they can compare their numbers to those provided by the insurance company’s actuary. Particular areas may provide room for negotiation, which could result in a larger offer from the insurance company.
Insurance companies do not like to provide the total dollar potential payout figure when providing a buyout offer. They talk about present value, which is not the potential payout. Potential payout is the dollar amount that would be paid for the length of the claim. An actuary can calculate the potential payout so that you can see how much the insurance company is providing in the way of an offer (the percentage). For example, if the insurance company offers $1 million against a $5 million potential payout, that’s 20% of the potential payout. A $2 million offer would be 40% of the potential payout. Insurance companies don’t provide the potential payout figure because they don’t want you to understand what your disability contract provides. By keeping you in the dark, they can often settle the claim for a lower dollar amount.
Having an actuary on your side can often make the difference between a fair settlement and a one-sided one that favors the insurance company. Sometimes, the insurance company offer is fair and other times, it’s a low-ball offer that is an insult to the claimant. Knowing what is fair is the key.
Objectivity by the Consultant
You do not have a valid buyout offer until you have a letter from the insurance company. A consultant can help you secure the letter when only a verbal offer has been made. If you have not received an offer from the insurance company, but you want to consider a buyout, the consultant can tell you how to approach the insurance company without looking hungry. The consultant will also discuss the pros and cons of a buyout in order for the claimant to make an appropriate decision for their circumstances. An objective consultant will not push for a buyout. The consultant will tell if the buyout does not make sense for your situation once all the facts are known.
The Stone Wall
Finding a disability actuary is difficult since most work for insurance companies. Finding a disability consultant who is experienced in disability claims is also a challenge. However, when you can secure the services of this team, you will go a long way toward protecting your financial interests.