by John Darer CLU ChFC MSSC
Rated ages are opinions of underwriters at the life insurance companies that issue structured settlement annuities permitting an older than chronological age be used when the underwriter feels that the plaintiff has a reduced life expectancy.
Please note that a rated age is not a given and in some cases the plaintiff will not receive a rated age determination.
A lifetime annuity is sometimes referred to as "longevity insurance" because, through its contractual guarantees, it eliminates the risk of outliving income.
When structured settlement annuity payments are payable for a lifetime or payments are otherwise life contingent then a rated age serves to reduce the annuity cost of benefits that have been defined or, to increase the amount of income that can be purchased per dollar of annuity cost.
Rated ages will vary based on the opinion of each annuity issuer's medical underwriter, after a review of medical records. Medical records related to the claims in the law suit as well as other unrelated factors may be considered.
A rated age may (or may not) make a difference in the pricing of a structured settlement
- Rated ages have no effect on guaranteed deferred lump sum payments.
- Rated ages have no effect on payments paid for a period certain (fixed period). Even if payments are life contingent a company with the best or highest rated age may not necessarily be offering the best priced structured settlement annuity. The longer the period certain on a life contingent structured settlement payment stream the less the effect of the rated age.
Consider the following cost per $1,000/month 10 years certain and life structured annuity for an age 20 Male compared to age 30 and age 40 (sampling of actual "book" rates on 12/1/2006.)
- Company Age 20 Age 30 Age 40
- Company A 225,871 217,226 203,814
- Company B 224,046 217,488 206,158
- Company C 232,381 222,979 208,565
- Company D 219,769 211,771 199,265
- Company E 227,293 219,045 205,858
- Company F 223,542 213,659 198,961
For our 20 year old sample plaintiff, Company D is the least costly based on the "book rate" and using the actual age. Now let's say rated ages are obtained and Company E gives a rated age of 30 (i.e. +10 years) while Company D gives a standard (no rated age). Now the cost of Company E, which is the most expensive at the actual age, is virtually identical to Company D.
This is a very simple example. On a live case there are more moving parts. However the point to be made, is that
The rated age alone is not the determining factor in structured settlement annuity pricing. Sometimes a rated age will not be enough to make up the annuity price differential between structured settlement annuity issuers.
While I have no objections to disclosing rated ages on a sold structured settlement package, and personally do so in a structured settlement affidavit, as part of a submission to CMS for approval of a Medicare Set Aside allocation, or party request, simply disclosing all of the rated ages obtained may not be useful without having the pricing software of the various structured settlement annuity issuing companies, knowledge of their financial ratings and their underwriting rules pertaining to plan design.
One carrier is known for charging surplus strain premium for long deferrals with rated ages. That company could have the highest rated age and best actual age pricing, but the price break may be affected by the surplus strain premium to an extent that any differential from the rated age (when compared to other annuity issuers) is eliminated. Others love that type of cash flow.