If you have been offered a lump sum settlement by your disability insurance carrier, you need to know the present value of your claim to make an educated decision. This calculator does all the hard work for you, and can even generate a nice looking report showing every monthly payment so you can see how the value of each payment is reduced over time (to account for the time value of money).
It also has advanced features, allowing you to include an annual Cost of Living Adjustment (if your policy includes one), past monthly benefits (with interest), and attorney’s fees and costs. These are optional, so if you don’t need these functions, just leave them at their default values.
Do not expect your disability insurance carrier to ever offer you the full value of your claim as a lump sum buyout, even after your claim is reduced claim to present value. They know that there is significant value in never having to deal with them again. They also recognize the possibility that you could eventually recover or find some type of work that meet your capabilities. Most lump sum offers will fall somewhere in the range of 50%-80% of the present value of your claim. If you case is in litigation, the offer may be lower as the insurer has already determined that it has the chance to deny your claim and never pay you benefits again.
So, what amount is fair? This will depend on your individual situation. How confident are you that the insurer will never be able to cut off your benefits? How much is it worth to you to receive your benefits up front and never have to deal with your insurer again? Do you think you may be able to find work you can do in the future (if you do, you don’t have to pay the lump sum money back). The calculator can’t tell you these things, but it will let you know the full present value of your claim so you can apply the appropriate percentage to it.
Lump Sum Calculator
The formula used to reduce each future monthly benefit to present value is as follows: PV = MB/(1 + DR/12)^NM, where:
- PV = Present Value
- MB = Current Monthly Benefit Amount
- DR = Discount Rate (expressed as a decimal, e.g. 4% = .04)
- NM = Number of Months into the Future Before Payment is Due