Help me negotiate a lump sum payout.

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BoulderTrojan
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Joined: Mon Jan 14, 2013 9:11 pm

Help me negotiate a lump sum payout.

Post by BoulderTrojan » Tue Nov 05, 2019 6:33 pm

I have received disability checks every month for the last 29 months. Soon The Hartford will send me a letter offering me a lump sum payout in lieu of the monthly payments they will be paying me for the next 8 years. My internet research suggests that the offer will be 65-75% of the value of the monthly payments. The Hartford settlement officer I spoke to on the phone said there would be some wiggle room between the number they offer me and a higher figure that I may be able to negotiate for. My question is: Does anyone on the board have personal experience negotiating a lump sum payout? All I can think of is running all the numbers and proving Hartford is getting a great deal and they are offering me a lousy deal. And then saying I need a larger number. Are there any tactics, strategies, techniques, or data that would help me get the highest amount possible? Thanks a million!

Thesaints
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Re: Help me negotiate a lump sum payout.

Post by Thesaints » Tue Nov 05, 2019 6:55 pm

You can simply calculate the present value of payments spread over the next eight years applying an assumed return rate.
Check what return rate corresponds to The Hartford's offer.

You shouldn't forget about taxes, if those come into play, and the advantage of having a lump sum immediately available. Also, in case payments stop with your death, there is your chance of surviving the next 8 years to be accounted for (as well as the chance of the Hartford going belly up and stopping payments).

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Duckie
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Re: Help me negotiate a lump sum payout.

Post by Duckie » Tue Nov 05, 2019 7:08 pm

BoulderTrojan wrote:I have received disability checks every month for the last 29 months. Soon The Hartford will send me a letter offering me a lump sum payout in lieu of the monthly payments they will be paying me for the next 8 years.
Are you required to take the lump sum or can you continue with the monthly checks?

Topic Author
BoulderTrojan
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Re: Help me negotiate a lump sum payout.

Post by BoulderTrojan » Tue Nov 05, 2019 7:41 pm

I do not have to take the lump sum payout.

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#Cruncher
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Re: Help me negotiate a lump sum payout.

Post by #Cruncher » Tue Nov 05, 2019 8:14 pm

BoulderTrojan wrote:
Tue Nov 05, 2019 6:33 pm
… monthly payments ... for the next 8 years [96 months]. ... the offer will be 65-75% of the value of [the sum of] the monthly payments.
Thesaints wrote:
Tue Nov 05, 2019 6:55 pm
Check what return rate corresponds to The Hartford's offer.
65% is an 11.6% annualized return and 75% is 7.5%. Here they are along with returns for some other possible offers, computed with the Excel RATE function:

Code: Select all

Offer  Return
-----  ------
  65%   11.6% = 12 * RATE(96, 1 / 96, -65%, 0, 0)
  70%    9.4% = 12 * RATE(96, 1 / 96, -70%, 0, 0)
  75%    7.5%   etc.
  80%    5.8%
  85%    4.1%
  90%    2.7%
  95%    1.3%

123
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Re: Help me negotiate a lump sum payout.

Post by 123 » Tue Nov 05, 2019 8:21 pm

Depending on the amount of a lump sum payout your tax bracket may increase. This assumes the payments are regular taxable income.

If your mortality is a consideration you may be willing to take a lower lump sum because it might cause you to come out ahead (from a financial standpoint only).

From the insurance company's viewpoint this is just a financial transaction. When you calculate your own NPV of those future payments you should use an interest rate similar to a Treasury of equal duration since you want to ensure the funds are secure. They may use a much higher interest rate, like a corporate bond rate, which will reduce the lump sum considerably. I would not exhibit too much financial expertise. Just say if you put the money in a bank savings account it wouldn't last the duration expected. I might accept an offer that is 85% of the NPV using a treasury interest rate (if you are comfortable managing your own investments). If a lump sum bumps up your tax rate that is an argument as well.

If they don't seem to be moving much on the offer you can simply say it looks like it's just better to receive the monthly payments.

Just some thoughts. YMMV
The closest helping hand is at the end of your own arm.

Topic Author
BoulderTrojan
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Joined: Mon Jan 14, 2013 9:11 pm

Re: Help me negotiate a lump sum payout.

Post by BoulderTrojan » Tue Nov 05, 2019 8:41 pm

I am grateful for all of your replies.

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Stinky
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Re: Help me negotiate a lump sum payout.

Post by Stinky » Tue Nov 05, 2019 11:34 pm

Is there a chance that you will recover during the next 8 years?

If so, the lump sum starts to look more attractive.
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Watty
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Re: Help me negotiate a lump sum payout.

Post by Watty » Tue Nov 05, 2019 11:42 pm

Be sure that taking the lump sum will not also end any other benefits that you might be getting if this is a company provided disability policy.

BigBevo
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Re: Help me negotiate a lump sum payout.

Post by BigBevo » Wed Nov 06, 2019 12:01 am

Mmmm...if the lump sum really is 65-75% of the total....might want to keep the checks coming and invest as they do.

Bfwolf
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Re: Help me negotiate a lump sum payout.

Post by Bfwolf » Wed Nov 06, 2019 12:23 am

Yeah I guess I am not seeing why you are interested in the lump sum. Let's say you negotiate them from 65% of the value of the annuity to 80%. Would you take the lump sum at that point? Wouldn't you rather the more valuable annuity? They're never going to offer you close to 100% of the value.

Thesaints
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Re: Help me negotiate a lump sum payout.

Post by Thesaints » Wed Nov 06, 2019 12:43 pm

Based on #Crunchers numbers, I wouldn’t even take 90% if the annuity issuer is safe.
The only scenario where the lump sum becomes acceptable is the one in which one needs the lump sum

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