Unless this person is actually fit to work, or will be fit to work within 2 years, I would advise him to keep receiving the $1200. If he stays on this plan for 3 years, he will already have pulled in more than the lump sum of $30,000. If he remains on disability until he turns 65, he will have made more than half a million dollars.

Well i completely agree that if he is really suffering from serious disability problems then he should continue with the monthly amount but if there is a doubt that he might not be exactly disabled or that he has recovered then he should collect the lump sum.

I would say that it would depend on what the person has in mind to do with the money.

There are plenty of ways to invest that money into business that can easily return more than $1,200 per month but they would have to think long and hard about if they know enough to invest.

i agree with goodyphilips...

hi guys,,,
I have gone through both of the options
I advice yo to better go for per month plan.$1200 not only provides him more money than the other option.

Rarely is the lump sum "buyout" in the best interest of the person. There are exceptions but based on my experiences the insurance company knows they have a long term situation and they just want to get rid of you as cheaply as possible. If this person truly has a disability that will continue for many years then they need to do what is in their own best interests.

RichS CFP(r)
www.insimplelanguage.com

Absolutely not. The insurance company finds it advantageous because its a quick payoff to eliminate a long term liability. A person who is disabled is much better off on a small fixed income than selling out their future.

David,
This is certainly an unusual situation - and I'm glad you said it is hypothetical. First, usually - it is unlikely that a top rated insurance company would actually offer to settle in a lump sum - as the disability insurance policy specifies the benefit that the insured has paid for and - it being a unilateral contract - they would not normally offer a lump sum settlement. At least, in my 16 years of being an advisor - I've never seen it in actual practice. But then again - every day I see stranger things than this. Insurance companies trying to welch on a deal is... pretty much how they make the big profits.

However - my advice would be for the insured to do what is RIGHT. If he is disabled and cannot work - and expects that disability to continue - then a guaranteed monthly income to age 60 or 65 (depending upon the policy specifications) and most likely tax free (assuming it wasn't paid for by an employer) - is a VERY valuable benefit. Worth far more than $30K.

If he is not truly disabled - or if he has problems with the occasional checkup (which he should be getting anyway if he is disabled) then methinks the insured would have an integrity problem in addition to the disability problem. In that instance (and likely the insurance company would figure this out) both he and the insurance company probably know that the monthly checks might end soon...