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“Disability Denied”   A disability law blog by Ontario disability lawyer Mark Yazdani

Consult a Disability Lawyer before agreeing to a Lump Sum Settlement

Occasionally, an insurance company will approach a disabled claimant and offer to pay them a one-time lump sum payment rather than continuing to pay monthly disability benefits. In exchange, the claimant signs a “Full and Final” release whereby they surrender all further entitlement under the group disability policy.

In most circumstances, an insurance company will offer a lump sum settlement if they believe it is unlikely that the claimant’s health situation will ever improve. Thus, rather than pay monthly benefits until the claimant reaches age 65, the company will look to reduce their liability by offering a one-time lump sum payment which is discounted.

There are pros and cons to accepting a lump sum offer. The largest disadvantage is that no matter how large the sum, a claimant will receive less (often significantly less) than if they remained on claim and received a monthly benefit to age 65.  Further, once the lump sum has been spent, the claimant is not eligible to receive any further disability benefits under the policy. Thus, unless the claimant returns to the workforce, their only source of income may be CPP disability benefits, social assistance, or other government disability benefits.  Another disadvantage may be that the claimant loses other benefits contained in the group policy – for example, group life insurance coverage.

However, some claimants prefer to receive a lump sum as opposed to monthly benefits so that they can use the money to purchase a home or pay off a mortgage. Some claimants also prefer a lump sum because they will no longer have to deal with the insurance company and the continuous requests for updated medical information. Once a lump sum agreement is reached, there are no further dealings with the insurance company. Further, if after taking a lump-sum benefit a claimant’s health improves such that they can return to the workforce, they will not be required to return any of the money to the insurance company. Finally, for claimants who are taxed on their monthly disability benefit, the entire lump sum amount received would be non-taxable. For these reasons, some claimants will themselves approach an insurance company and inquire about the possibility of a lump sum settlement.

It is critical that you consult with a disability lawyer prior to entering into a lump sum agreement. A disability lawyer can provide you with a present value calculation of your monthly benefit and advise you as to the reasonableness of the insurance company’s offer. A disability lawyer can also review your policy and explain all the ramifications of surrendering your coverage and signing a Full and Final Release. A disability lawyer can also negotiate the lump sum settlement on your behalf.

At Yazdani Law Office, we have experience and expertise in negotiating and assisting clients across Canada with lump sum settlements. Contact us today for a free and confidential consultation with disability lawyer Mark Yazdani.

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