What to do if you’ve been offered a lump sum settlement for personal health insurance (PHI)
For ongoing, long-term claims an insurer may offer you a lump sum.
Careful consideration and urgent legal advice needs to be taken on any lump sum offer. Refusal of a lump sum offer does not necessarily lead to a quiet life in the future. The fact is that the file will have come to the top of the pile and refusal of a lump sum offer may well lead to the insurer targeting the claim and indeed seeking to terminate it at a later date.
However, before any lump sum offer is refused it is worth considering both the amount offered and whether insurers would be prepared to increase it.
The best prospect of obtaining an increased offer is when there is up to date medical evidence; without rejecting the offer out of hand a request can be made to insurers for a more reasonable sum, to which you should always copy in your employers.
You need to remember that any lump sum will be less than the total value of a policy up to the date of termination (often the age of 65) for three reasons:
- your health might improve enough for you to be able to take up some kind of employment
- you are receiving the money up front and can invest it how you wish
- you may regrettably die before the termination date in the policy.
A lump sum offer will normally be made direct to the employer or their broker. You should request in writing a copy of the offer letter and ask about the time limit on the offer.
What do you do if you want to accept a lump sum?
If you want to accept a lump sum offer, you should give it urgent attention because there will be a time limit on the offer. However, without prior tax clearance, it will be subject to tax and therefore may not be reasonable or acceptable to cover your needs.
The employer who is the insured under the group scheme should apply on your behalf to HMRC for the appropriate tax clearance under Section 406 (b) ITEPA 2003. This provides that a prior application must be made by the employer to their tax office requesting tax clearance with up to date medical evidence. This can normally be in the form of a GP letter and a consultant’s letter. HMRC will also request a copy of the terms and conditions of your employment and the offer letter from the insurer.
One difficulty with obtaining tax clearance is that we are seeing an increasing number of cases where employers – particularly large ones – say they are too busy to get involved with making an application for tax clearance. A solicitor should therefore offer you assistance in the application for tax clearance and in liaising with your employers.