One of the most attractive and secure features of a structured settlement is that the benefit payments can often pay for the plaintiff’s lifetime. Most common is a monthly payment that is guaranteed for a certain period with a lifetime rider (to ensure the plaintiff will have a benefit for the rest of his or her life). Two factors predominantly affect the benefit payment amount:
- The annuity premium amount (the amount used to purchase the annuity)
- Life expectancy of the annuitant (based on age, gender, medical history, and health)
The Annuity Premium Amount
The annuity premium amount is determined by the plaintiff’s total net recovery, or the amount remaining after legal fees, expenses, and liens have been paid. Once the net recovery is determined, there is the decision of what upfront cash will be paid to the plaintiff. After subtracting this upfront cash amount to maintain adequate liquidity from the net recovery, the remaining funds can be used as the annuity premium amount for the structured settlement.
Life expectancy is affected by two factors: the annuitant’s gender and age. Statistically, females live longer than males, so life expected benefit totals for a female annuitant are generally higher than for a male of the same age and health.
Life expected benefit totals are based on an annuitant’s probability of survival. The higher the probability of survival (i.e. the younger the person is), the smaller the benefit will be. Conversely, the benefit for an older annuitant will be greater.
One factor that can alter the normal life expectancy is substandard age rating. Contingent on the annuitant’s health (or lack of normal good health), substandard age rating can artificially increase the annuitant’s age. Then, depending on how the tool is utilized, the substandard age rating can (1) provide for a lesser cost to a stream of lifetime benefits, or (2) increase the monthly benefit, guarantee, and overall lifetime return.
Substandard age rating varies widely between insurers and their medical underwriting teams’ past experience with annuitants with similar health issues. A high rated age in a serious injury case can significantly raise monthly and lifetime benefits or can be used to reduce the overall cost of the annuity.
Learn more by contacting ROBINYOUNG & COMPANY.