Long term private disability check wants to seen us a lump sum could we put it in an Ira and not pay taxes?

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Long term private disability check wants to seen us a lump sum could we put it in an Ira and not pay taxes?

Long term disability insurance from work. We receive a montly check until me husband turns 65 and then he can retire from the firm.

Asked on June 6, 2009 under Insurance Law, North Carolina

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

By offering a lump sum to you instead of having to continue to pay long term disability insurance (probably for life -- if the condition is likely to improve so you would not be disabled they are highly unlikely to make such an offer), the insurance company here is trying to get you commute the stream of long term payments.That involves a play on your need for a large cash payment now vs. protecting your long-term financial security with ongoing payments for your life.

Insurance companies know people have little appreciation of the financial aspects of these decisions, and are likely to be greedy and assume a dollar in the hand is worth 10 in the bush. In terms of advice, make sure you get some in terms of the imputed interest rate you'd be paying for your money. Also make sure you have a good idea as to your life expectancy -- people who are disabled often have substandard life expectancies.

And as the disability income come from an employer provided policy (assuming you did not pay the premium) it is taxable to you. Getting it in a lump sum would not change things. Just as you can't place 100% of your income in an IRA to defer taxes, Unless they changed the law very recently (and for that get a tax expert to advise you) you could not put all the money in an IRA to defer taxes.


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