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Home » FAQ
  1. What is an Annuitant?
  2. What is an Annuitist?
  3. What is an Annuity Contract?
  4. What is Default Risk?
  5. What is a Discount Rate?
  6. What is a Fixed Period Annuity?
  7. What is Future Value?
  8. What is a Growth Rate?
  9. What are Household Services?
  10. What is Inflation rate?
  11. What is Inflation Risk?
  12. What is a Life With Periodic Certainty Guarantee Annuity?
  13. What is a Life Annuity/Straight Life Annuity?
  14. What are Life Care Costs?
  15. What is a Life Care Planning Expert?
  16. What is Life Expectancy?
  17. What is a Life Table?
  18. What is the Net Discount Rate?
  19. What does it mean by Non In-Home Services?
  20. What are Nonmarket Services?
  21. What is Present Value?
  22. What is a Rated Age?
  23. What is a Settlement Annuity?
  24. What is Standard Risk?
  25. What is a Substandard Risk?
  26. What is a Vocational Expert?


What is an Annuitant?
In a Life Annuity/Straight Life contract, an "annuitant" is an individual whose continued life will be used in determining how long the annuity payments will continue to be paid. Technically, the annuitant may or may not be the “beneficiary” (or payee) of the contract who receives payments guaranteed under the contract. However, in most annuity contracts, including defined benefit pensions, the annuitant(s) and beneficiary(s) are the same person or persons. In many defined benefit retirement pensions, both a worker and his or her spouse are both annuitants and beneficiaries. The “owner” of the annuity contract may be still another person or business unit.  (See Settlement Annuity.)

What is an Annuitist?
An annuitist is typically a consultant who specializes in obtaining prices for and the placement of annuities meeting special requirements with life insurance companies.  If an annuity approach for providing for the life care needs of an injured person in a personal injury action is followed, an annuitist specifies the terms which are to be included in the wording of an annuity contract and obtains prices from insurance companies that are willing to underwrite such contracts."

What is an Annuity Contract?
An annuity contract is an agreement between the owner of the contract and the issuing life insurance company that provides for benefit payments to be made to at least one beneficiary or payee.  The contract may be for a fixed period of time or for a period of time contingent upon an annuitant's life. For example, the contract might specify that the issuer of the contract will pay the annuitant of the contract monthly benefits starting of $1,000 per month and increasing by four percent at each anniversary of the contract for either a fixed number of years or the remainder of the annuitant's life.  Either the annuitant, or someone on the annuitant's behalf, will have paid (at least) an immediate single lump sum premium to the issuer to initiate this flow of payments. 

What is Default Risk?
With any financial security that promises to make specific dollar payments at specific times in the future, there is some risk that the issuer will not be able to make promised payments.  When a promised payment is not made, the issuer is said to be “in default.”  Default risk is the risk that a financial security or porfolio of financial securities will not make scheduled payments.  All of the life companies we use have the highest rating, A+ rated life companies. This also means that there is virtually no risk of the company defaulting on its payments.

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What is a Discount Rate? 
A discount rate is an interest rate that is used to “discount” the value of future expected payments to present value.  In effect, a discount rate removes the future interest that a present value sum would earn until a future payment would be expected.  If a stream of future payments of $1,000 per year for ten years is “discounted” to present value, the value will be significantly less than $10,000.  If that present value is invested in securities with an interest rate that is used as the discount rate, the fund will make scheduled payments, but attract interest on the remaining balance.  Over the term of the stream of future payments, the accumulation of interest at the discount rate will provide the fund with monies needed to make all scheduled payments.

What is a Fixed Period Annuity?
A "Fixed Period Annuity" allows the annuitant to receive contractual benefit payments over a set number of years. At the end of the period, no further benefits are payable for the remainder of the annuitant's life. However, if the annuitant died during the fixed period, a surviving beneficiary would receive the remaining value by receiving periodic payments to the end of the fixed period, or by receiving a lump sum of equal worth of such payments.

What is Future Value?
The future value of a cash flow is the accumulated number of dollars, including accumulated interest, that will have been paid (e.g. into an account), over a specified period. It is a lump sum of money that represents the total amount paid (including interest) over the period.

What is a Growth Rate?
A growth rate is a percentage rate at which a series of payments is projected to increase. It is conventional to project growth rates in annual terms such that a growth rate for wages of five percent would mean that wages would become five percent larger each year. Growth rates might exist for costs in a life care plan, wages, job-related fringe benefits, the Consumer Price Index (CPI) and many other economic variables.

What are Household Services?
(See also Nonmarket Services.) Household services are non-market goods and services that are produced within households that have close analogs with goods and services produced within markets. Goods and services produced within families include both household good services and relational goods and services.  The latter refer to special goods and services involving love, affection, consortium and special companionship.  Household services refer to such activities as doing dishes, cleaning a house, child rearing activities, maintaining lawns, making repairs to household appliances and so forth.

What is Inflation rate?
Inflation rate is the rate of decrease in the purchasing power of money.

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What is Inflation Risk?
Inflation risk is the risk that the inflation rate will turn out to greater than the rate of inflation that was forecast, either explicitly or implicitly, in a projection of the stream of future payments.  In an explicit projection, the stream of future values is projected at a specified rate of increase, which either is the rate of inflation or directly depends on the rate of inflation, as would be the case with wage growth. If the rate of inflation is greater than forecast, there will be a loss in purchasing power in the payments that will be made.  In an implicit projection, a real discount rate or a net discount rate implies a relationship between the rate of inflation and the discount rate.  If the rate of inflation increases more rapidly than the forecast of that relationship implies, there is a risk of loss in real purchasing power.  Unlike default risk, however, inflation risk has both positive and negative sides.  If the rate of inflation is forecast too high, either explicitly or implicitly, there will be gains in purchasing power in the stream of payments. 

What is a Life With Periodic Certainty Guarantee Annuity?
A "Life with a Periodic Certain Guarantee Annuity" provides payments for as long as the annuitant remains alive, but with the hybrid provision that payments are guaranteed to be made over a fixed period, even if the annuitant dies during that fixed period.  If the annuitant died during the fixed period, the remaining portion of specified benefits for the specified period would be paid either periodically or in a lump sum to a surviving beneficiary.

What is a Life Annuity/Straight Life Annuity?
It is a stream of payments guaranteed to a given individual for as long as that individual remains alive.  Many annuities are provided to an individual as a condition of employment or, as in the case of Medicare, as a condition of having reached the age of 65, including pensions and Social Security benefits.  Individuals may also purchase annuities from insurance providers.  Any annuity that is limited to payments based strictly on the survival of the owner of the annuity is called a “life annuity.” “Blended annuities” may add various special provisions such as that the payments will be guaranteed for a number of years, even if the individual dies, or that some part of the annuity payment amount will continued for the remainder of the life of a  widowed spouse. 

What are Life Care Costs?
Life care costs include both medical and non-medical costs an individual will bear in the future because of a catastrophic personal injury. Such costs may include medications, medical treatments, rehabilitation training, special education, special housing requirements, special vehicle requirements, personal attendant care and similar types of expenses made necessary because of an injury. 

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What is a Life Care Planning Expert?
A life care planning expert is someone who has specialized knowledge in translating treatment recommendations of medical doctors for individuals with permanent injuries into the specific goods and services that would be required for those treatments.  A life care planning expert also has knowledge about the special equipment and needs that will be required for specific types of disabilities that an individual may have suffered because of an injury.  Normally, in a personal injury case, a life care planner will prepare a report of the medical and life care needs that are necessitated by an injury, both currently and in the future, and the current costs of those medical treatments and life care requirements. 

What is Life Expectancy?
The average number of years a person would be expected to live from a given date in the past or today's date.

What is a Life Table?
A "Life Table," or "Mortality Table" is a table providing a listing of the number of individuals expected to remaining alive out of a birth base of 100,000 individuals. The table may be broken down by sex or race, to reflect cohorts, but it will, at a minimum, show the number of individuals surviving and dying at each year of age starting from age 0 and continuing to an advanced age, now usually age 100 or 120. [The tables may be “static” in the sense that they rely exclusively on past experience or “cohort” in the sense that they attempt to project the number of survivors likely to exist in the future.

What is the Net Discount Rate?
The net discount rate (sometimes also called "net real interest rate") is the geometric difference between the interest rate used as a discount rate and rate of increase in a worker's wages. It differs from the real interest rate, which is the geometric difference between the discount rate and the rate of inflation, though in recent years the two rates have been quite similar. Some economists argue that the below market discount rate referred to in the Pfeifer and Culver II federal court cases is synonymous with the net discount rate, while others argue that the below market discount rate can refer to either the net discount rate of the real interest rate.

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What does it mean by Non In-Home Services?
Non In-home services is a term referring to market substitute goods and services that an individual might provide for a relative not living in the individual's home.  Making repairs on a parent's home or taking a parent to the doctor or dentist would be examples. 

What are Nonmarket Services?
(See also Household Services and Non In-Home Services.)  Nonmarket services are services such as cutting grass, washing dishes, preparing meals, providing guidance and counsel to family members, teaching minor children, preparing family budgets and other services for which market equivalents exist in the commercial marketplace. Such services may be provided within households or to adult children or parents who are separately domiciled.

What is Present Value?
In financial theory, present value is a sum of money today which would exactly replace a stream of payments from the past or from the future, based on an assumed discount (interest) rate or set of rates.  If the interest rate is presumed to be 10 percent, a sum of $1000 today will be worth $1100 at the end of one year (10 percent of $1000 is $100). In that sense, $1000 is the present value of $1100 one year from now.  The actual process depends on the period over which compounding takes place, but $1000 today would be worth $1100 in one year and $1210 in two years.  The extra $10 in the second year is $10 in interest on the interest from the first year.  Thus, with annual compounding, $1000 is the present value of $1210 at the end of two years.  In law, there is often a prohibition against pre-trial interest.  As a result, what is called “present value” in litigation is often a combination of past actual value, but future present value.  In the true financial sense of “present value,” interest must be added to past losses and subtracted from future losses.

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What is a Rated Age?
Is the life expectancy adjusted age used to calculate the cost of a structured settlement. Rated age is the risk that the life insurance company absorbs is a huge benefit to a plaintiff with lifetime medical needs and/or a need for lifetime income, who needs absolute certainty. Obtaining a substandard rating can facilitate the negotiation process because it reduces the cost of the annuity and shifts the burden of the risk to the life insurance company providing the annuity. The rated age may vary widely among life insurance companies. We actively shop through our extensive resources to achieve the best price/benefit package for your structured settlement.

What is a Settlement Annuity?
A settlement annuity is an annuity contract that is unique because the periodic payments received from the annuity contract are not subject to federal income taxes. Lump-sum purchase premiums are to be paid from settlements/awards of personal injury or wrongful death actions that are covered, per se, under IRC 104(a)(2). In terms of the contract language, a settlement annuity contract must comply with IRS Revenue Ruling #79-220. That ruling allows the payee to exclude annuity contract payments from reported income for tax purposes if the payee was precluded from ever having control over the lump sum (premium) paid for the annuity contract. This means that the payee never had and never will have constructive receipt of the proceeds used to purchase the annuity contract.. To meet that requirement, the settlement annuity is owned by the defendant or some third party, usually a default-proof assignee of the defendant.

What is Standard Risk?
The term "Standard Risk" is applied to an individual if an insurance underwriter evaluates the survival and mortality rates of that individual as being typical of the cohort population included in the life table.

What is a Substandard Risk?
The term "Substandard Risk" is applied to an individual whose survival rates are evaluated by an insurance underwriter as lower than that of an average individual in a life table and whose mortality risks are therefore higher.

What is a Vocational Expert?
A vocational expert is a person who has normally had education and training in vocational counseling and who helps unemployed persons find suitable employment. Because of their education, training and direct involvement in job placement activities, vocational experts develop special expertise in the jobs that would be available to a particular injured worker and the current compensations that worker might be expected to earn. For that reason, vocational experts are often called upon in personal injury actions to make estimates of the earning capacity or expected earnings of workers who are forced to take new jobs because of an injury at issue in a tort action.  Many vocational experts are vocational rehabilitation experts.