L1: Structured Settlements & Pension Plans Flashcards
Structured Settlement part 1: person injured by another or institution
Individual/Institution responsible for injuring a person -> required to compensate for medical expense, lost wages, and other costs arise
Structured Settlement part 2: What will Injured Party and Responsible part agree on?
payment schedule for compensation through layers of insurance
Worker’s compensation
insurance purchased by employer that pays benefit to employee who are injured at work. Used for medical, personal injury or motor vehicle
What is included in Structured Settlement
immediate lump sum payment and annuity. Whole life annuity if injured party is severely injured and temp life annuity that extends until injured party recovers or injury less severe
How much are annuity payments under structured settlement
less than 100% of pre-injury earnings but increased to adjust for COLA/Inflation
Annuity Payments Features in Structured Settlement (3)
- tax free
- incentive for IP to return to work
- IP at fault for injury
Maximum medical improvement
when final structured settlement will be determined, time stop for interim benefits <- IP is severely injured
Structured Settlement Buyouts and where is this prohibited
IP tries to sell annuity to specialist in firm in exchange for lump sum. Prohibited in Canada and USA
Valuation of Structured Settlements
Changed from one lump sum system to annuity based payment structure
Dissipation Risk
risk of overspending, resulting in subsequent financial hardship
Determining Annuity Payment in Structured Settlement (2 methods)
Top Down Approach, Bottom up approach
Annuity Payment in Structured
Top Down Approach
determine lump sum and convert to annuity
Annuity Payment in Structured
Bottom Up Approach
determine income stream, calculate expected present value of payments
which is more suitable to match pre-injury income of injured party of the two annuity methods
Bottom up approach
