Reserves

Disability insurers are required by state regulators to keep a certain amount of money set aside, or “reserved,” to pay future claims.  Any money required to be kept in a reserve is money that the insurer cannot spend on other things or pay out in dividends.  The amount required to be kept in the reserve is determined by the state, depending on factors like how much the monthly benefit is and how long the claim is expected to last.  If the insurance company is convinced that you are totally and permanently disabled, it may seek to offer you a lump sum buyout so that it can release the money in its reserve to use for other purposes, such as providing dividends to its investor.

Click here for more information about insurance reserves and lump sum buyouts.