A structured settlement annuity is a great tool to replace future income, particularly when an injury victim will either be unlikely to work in the future or will have diminished work capacity due to catastrophic injuries.
In order to maximize the value of a structured settlement annuity for catastrophically-injured clients, we send a client’s medical information annuity companies for evaluation. Upon review of the medical documentation, the annuity companies assign the client a “rated age.” Essentially, a rated age is the statistical age of a client due to their injuries, and it is based on actuarial tables.
With a rated age, when an annuity company provides quotes for lifetime payment, the pricing (and the subsequent return on investment) are based on the client’s rated age rather than on the client’s biological age.
Here’s another way to think about it: a rated age is most beneficial to a client with a lifetime benefit if the rating shows the injuries place them at an older age than their biological age. This means that — per premium dollar that is sent to the annuity company — the future payment to the client will be higher.
This process can be compared to the opposite of an evaluation for life insurance. When an individual applies for life insurance, they want to look as healthy as possible to get higher premiums.
It’s the opposite when seeking a rated age for a catastrophically-injured client. The client will get better returns if their evaluation comes back showing their injuries will significantly shorten their life expectancy. This helps get them the highest possible rated age, which increases the rate of return on that annuity.
It’s no secret that structured settlement annuities are currently paying out at a very low rate of return (in this low-interest-rate environment). However, when dealing with a lifetime annuity for a client that is catastrophically injured and who has achieved a rated age, the rate of the return on the annuity can be much higher — and make the structured settlement annuity a stable, guaranteed, and tax-free investment.