LTD payout options

I am currently getting LTD from a large Ins company and they made me a settlement offer and I am trying to look at the options of saying yes, but being taxed heavy via my tax guy feedback or saying no and continue to get monthly checks for another 12 years.

-The Con is they can and will ping my doctor every 6 months to try and get out of paying me for the next 12 years by asking for detailed reports that have to meet the LTD requirements.

  • If I move out of the area I would have to find new doctors to come up to speed and agree with my old doctors or I could lose my LTD.
  • If I take the settlement, I would outright lose 6 years of payments equivalent, plus another 1/3 to taxes which leaves me with about 4 years of he payment they are paying out monthly now. I asked if they could pay me over 3 or 4 years and they will only pay out one large lump sum

The Pro - I am Done with this company, and don’t have to worry if I move or change doctors

So I am looking for feedback, is there a way to off set the taxes so I won’t be hit so hard and is it worth tossing in the towel to just get a much smaller total payout?

Thanks for good feedback, I am not sure what to do on this one …

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If they’re offering, I’m sure it’s because it’s a worse deal for you. I guess it comes down to your personal situation and how likely it is for them to be able to challenge your medical status. If it’s clear you’re eligible and will stay that way, I don’t know why you’d take their offer - they’re probably hoping you’ll be short term greedy and take a big headline number despite the taxes and the lower long term value.


Thanks for the feedback, I know I left a bunch of blank spaces that need to be filled in, but didn’t want to get to personal about the information. I will say after a year of LTD they closed the case without even looking into things with my doctors or talking to me, I just got an email saying something had changed on my case. So I hired a legal firm to work on the 1 appeal they give you to rebut the case facts with a 3rd party making the decision to reopen or leave my case closed. After a month or so I won the judgement and my case was reopened, the legal firm I hired did a great job in researching and presenting the facts in my case.

I asked he legal firm to also ask xxx about a settlement offer, and I guess they came back with 58% offer based on the total amount I would have received over the 12 years remaining in the LTD terms. So subtracting the legal fee’s % ( which they well earned ) and then the tax hit was the final pay out amount which is about 4.33 years. If you didn’t factor in the legal fee’s and tax hit it would be about 8 years, so the offer wasn’t so bad. This was one of the reasons I was asking about a way to deffer or offset the taxes so I wouldn’t take such a huge hit.

Sorry to hear about your injury.

Eight years sounds like a good offer, especially if their max liability is twelve years. I don’t think you can expect much more. For the longest time, insurers were demanding extended payout periods. It meant that they were less likely to be hit up from people who took a lump sum and promptly blew it.

Assuming no further offer from them, it looks like the 12 years is your best bet. Of course, if you want to explore other opportunities, or don’t want to worry about a camera pointed at you, maybe counter-offer that you’ll accept the payments over four years and they don’t have to pay you interest. :slight_smile:


We did ask if they would do a payout over 3 or 4 years and they said no, which I thought was kinda strange, but I can see them just wanting to cut a check and say see ya. Otherwise I have no idea how to off set the taxes, it would be less of a hit if it was over multiple years, can I reclaim some of it with solar panel or a electric car?

Thanks Much

I asked my old Company if it was pre or post tax dollars paid benefits and they said it was “LTD benefits are after tax”, so would this mean it’s tax free then?


I thought that if you pay with pre-tax dollars the benefit is pre-tax and if you pay with post-tax dollars the benefit is post-tax.

If your employer is paying it for you it is pre-tax unless you get inputted taxes on it as a fringe benefit.


I wasn’t sure if it was pre or post so I asked the Finance dept at my old company and they wrote back : LTD benefits are after tax dollars So does that make it tax free, since it was after tax dollar benefits?

A little confused on this…

It should. You probably pay taxes on their contributions when you get your W2 they add the cost as a fringe benefit.

By it should, you mean I will owe or won’t owe? No idea how that works for pre and post tax for benefits. It pretty stupid anyways, the end result for the person getting LTD is the same, just now one way they are getting taxed the other they are not.

According to the cut and paste (below and linked) from the IRS website, which may or may not be correct:

The disability payments to you are not considered earned income if:
You paid the LTD insurance premiums with after tax dollars.
Your employer paid the LTD insurance premiums, but you paid tax on those premiums.

Disclaimer: I am not a lawyer, accountant, or any other profession. In fact, I am not an AI or even an I.

From the IRS website :

Is the long-term disability I am receiving considered taxable?

You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer:

If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that's due to your employer's payments is reported as income.
If you pay the entire cost of a health or accident insurance plan, don't include any amounts you receive for your disability as income on your tax return.
If you pay the premiums of a health or accident insurance plan through a cafeteria plan, and you didn't include the amount of the premium as taxable income to you, the premiums are considered paid by your employer, and the disability benefits are fully taxable.
If the amounts are taxable, you can submit a Form W-4S, Request for Federal Income Tax Withholding From Sick Pay, to the insurance company, or make estimated tax payments by filing Form 1040-ES, Estimated Tax for Individuals.

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Thank you for the great info people, I asked my old company to send me the statement on company letter head so I can give it to my tax guy, but in any case I am going to set aside the funds just in case. I also wonder if I can refile last years taxes then since my tax guy assumed it was pre tax dollars.

Thank you all

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