The Hidden Risks of Accepting a Lump Sum Payout for Your Long-Term Disability Claim

In recent months we’ve had a significant increase in clients calling us to discuss lump sum buyout of their approved LTD claims. Sometimes their insurance company will have made them an offer and other times they want to know how to approach the insurance company to ask about a buyout. Normally, we discourage buyouts but the high cost of living has made it impossible for many people to survive on a small monthly income and they would rather take a lump sum to pay off their debts and invest the rest for the future. There are still very serious risks to a buyout, which we highlight in this week’s blog.

What Is a Lump Sum LTD Settlement?

A lump sum settlement is a one-time payment offered by your insurance company to resolve your LTD claim in full. In exchange, you give up your right to any future monthly benefits regardless of how your health or circumstances change down the road.

Why Insurers Offer Lump Sums (and Why You Should Be Wary)

Insurers rarely offer lump sums out of generosity. These offers are calculated to serve their interests, not yours. Once you accept, the insurer’s financial responsibility to you ends— permanently. If your disability worsens, or if you develop new health issues, you cannot return for more support. The payout is final.

Key Risks of Accepting a Lump Sum Payout

You May Get Less Than You Deserve
- Lump sum offers are almost always less than the total you would receive through ongoing monthly payments. Insurers discount the payout to save money, not to match your actual long-term needs
No Second Chances
- Once you sign a full and final release, your coverage ends. If your condition deteriorates or your expenses increase, you have no recourse. There’s no going back for more assistance, no matter how dire your situation becomes.
Loss of Other Benefits
- Accepting a lump sum can jeopardize other employment-related benefits. This may include extended health, dental, and life insurance coverage, as well as pension contributions—benefits often tied to your LTD status . Losing these can have a significant impact on your long-term financial security.
Tax Surprises
- Depending on how your premiums were paid, a lump sum payout could trigger a substantial tax bill. This can erode the value of your settlement and leave you with less than you expected. Always consult a tax professional before agreeing to a settlement.
Investment Risks
- Managing a large sum of money brings its own challenges. If you’re not a seasoned investor, there’s a real risk of mismanaging or losing your settlement through poor investment decisions or market downturns.
No More Professional Support
- Ongoing LTD benefits often come with access to rehabilitation, coordination of care, and other support services. Once you settle, these resources disappear, and you’re left to navigate your recovery and finances alone
Impact on Pension and Future Claims
- A lump sum settlement may affect your pensionable service or eligibility for other disability-related benefits. If you return to work and become disabled again, you generally cannot make a new claim for the same condition.

A Decision That Demands Careful Advice

Deciding whether to accept a lump sum settlement is a major financial and legal decision. It’s not just about the numbers on the cheque—it’s about your long-term security and well-being. Insurers are skilled negotiators with teams of experts. You deserve the same level of expertise on your side.

“That payout may look tempting, but if you take it and return to work, you will no longer be able to make a disability claim if you become disabled again for any reason in the future. It can be very risky to give up your coverage.”

Final Thoughts

A lump sum payout may seem like a quick fix, but it comes with significant risks that can impact your financial stability for years to come. Before making any decisions, consult with an experienced LTD lawyer who can help you understand the true value of your claim and safeguard your rights. If you’ve received a lump sum offer or have questions about your LTD benefits, contact Mulqueen Disability Law today. We’re here to help you make the best decision for your future.

Contact us for a Free Consultation

At Mulqueen Disability Law, we have decades of experience guiding clients through every step of the LTD claim process, from initial application to final settlement. If you’re considering a lump sum offer, let us help you weigh the risks and protect your future. Contact us for a free confidential consultation.

Mulqueen Disability Law is a boutique law firm, focused on litigating long-term disability insurance benefit claims. Courtney Mulqueen and her team of legal professionals are Trauma-Informed Certified and have over two decades of experience exclusively in the area of long-term disability law. She and her team draw on their “insider” experience working for the insurance companies (including, Canada Life, Sun Life, Manulife, and OTIP), that they now sue for their clients.

The preceding is not intended to be legal advice. This blog is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog, you understand that there is no solicitor client relationship between you and the blog publisher. The blog should not be used as a substitute for competent legal advice from a licensed lawyer in your jurisdiction. If your disability claim has been denied and you require legal advice, please contact a lawyer specializing in disability law.