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Why is the plaintiff’s life expectancy critical to the cost of a structure?

April 26, 2017COST critical expectancy life plaintiff plaintiffs structure

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Why is the plaintiff’s life expectancy critical to the cost of a structure?

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Structured settlement payments are often made for the life of the plaintiff, with or without a guarantee period.In these cases the life insurance company sets the price of the structure after examining the plaintiff’s medical records and the insurance industry’s mortality tables to determine how long the plaintiff is expected to live.A shorter life means a life insurance company will pay out less money over time. Thus, for a given level of “investment” (i.e., the purchase price of the annuity) a shorter life expectancy translates into higher monthly benefits for the plaintiff.Even when the plaintiff lives longer than expected the life insurance company will continue paying benefits for the rest of the plaintiff’s life. The life insurance company assumes the risk of a plaintiff living longer than expected, and it sets the price of the structure accordingly.