Lump Sum SettlementA lump sum settlement means that all of the money that you are awarded will be paid to you right away in full. A lump sum settlement in a disability claim represents a negotiated settlement which includes past benefits, future benefits, and other items (such as extra contractual damages, a contribution to legal costs and HST). It is generally a compromise between $00 entitlement and 100% entitlement.
Will I have to pay taxes on a lump sum settlement?
- The tax treatment of a settlement of a short-term or long-term disability claim will depend on a number of criteria that vary from case to case.
- If the lump sum settlement is re-invested and earns income or interest, the investment gains would be taxable.
- If the benefits were structured in such a way that when they are paid out on either a periodic basis (weekly, bi-weekly, monthly) that they are non-taxable, then a lump sum settlement would also be non-taxable.
- When the periodic payments are part of a taxable benefit plan, the settlement would likely include a portion that is taxable and a portion that is non-taxable (arrears would be taxable, and amounts considered future benefits would be non-taxable). The determination of whether benefits are taxable or not is based on whether the employer paid all or part of the premiums for the benefits. If they did, then the benefits would be taxable. If the benefits are paid by the employer directly (usually short-term claims), they would be taxable.
Your payout will depend on various factors including;
How much money am I entitled to collect under my disability policy?
- Your income
- Details of your illness/injury
- Medical support from multiple doctors
- The amount of your monthly disability benefit
- Your life expectancy
- The present value of your future benefits
Yes, it is possible, however; many long-term disability insurers will not be prepared to consider this option. If they are, they may not be prepared to pay an amount that would be acceptable to many claimants. A lump sum payout is not always the right decision, you have to weigh the pros and cons. Insurers are often suspicious regarding the motivation for such a request when monthly benefits are being paid and will usually only consider paying out the claim for a significantly discounted amount. Be very cautious before approaching your insurance company, as it may result in the insurance company investigating your claim more closely to determine whether they should consider termination your benefits. Whether to take a settlement in a lump sum or in a structured settlement depends on the specific facts and circumstances of each case. It is important to discuss this option with our trained and experienced staff at Share Lawyers.