In Workers’ Compensation, there are many ways upon which an Injured Worker can settle their case. In California Workers’ Compensation Law, there is the provision to allow Injured Workers to settle their cases via a Compromise and Release. In lay terms, it is commonly referred to as a “buy-out” or a “cash out.”
Many Injured Workers, during settlement negotiations, are asked whether they wish to have their settlements paid out in the form of a structured settlement. Sometimes, an Injured Worker, without knowing, may attend a settlement negotiation in which a Structured Settlement Broker is present.
A Structured Settlement implies that rather than one lump sum payment, the Injured Worker will receive payments over time. Structured Settlements serve many purposes within workers’ compensation. Sometimes, Structured Settlements are used to fund Medicare Set-Aside Trusts. The Federal Government allows for Medicare Set-Aside Trust to be funded over time via structured payments.
Structured Settlements can also be used to create a payment stream for the Injured Worker while they are alive. Also, it can provide a payment stream for the Injured Worker’s beneficiaries in event of their death.
This article is meant to introduce Injured Workers to commonly used phrases and concepts that are used when negotiating a structured settlement.
Nature of Structured Settlements
What is a Structured Settlement?
Essentially, a Structured Settlement is an annuity contract from a Life Insurance Company. It is a contract which guarantees a payment stream. The nature and terms of the payment stream can differ and vary. The Workers’ Compensation Insurance Company involved in the case will purchase the contract on behalf of the Injured Worker.
Are Structured Settlement payments made by the Insurance Company?
Generally not. Structured Settlements generally involve a Third-Party Insurance Company (Life Insurance Company) which bear the responsibility of making the payments. Sometimes, a Workers’ Compensation Insurance Company may try to request that a company associated with theirs operate as the Annuity Company from which the contract is purchased.
Does the Whole Settlement Need to be Structured?
No. Sometimes structured settlements include an initial lump sum payment from the Workers’ Compensation Insurance Company and a structure of payments to follow. Also, some settlements simply payout all of the money due except for the Medicare Set-Aside Trust Fund money. In those circumstances, a structured settlement is purchased only to fund the Medicare Set-Aside Trust.
Structured Settlement Terms
This section of the article is intended to explain the various terms used within structured settlements. There is a large variety of ways upon which the benefits can be paid out. This section will explain some of them.
What is “Life for a Period Certain?”
“Life for a Period Certain” means that payments that are guaranteed for life and for a guaranteed period (even if the individual dies.) For example, the settlement can be guaranteed for payment for 10 years and/or life. Therefore, if the Injured Worker dies in year five of the payments, the additional payments will continue for another 5 years. The Injured Worker will have designated a beneficiary in the agreement.
If the person lives beyond the guaranteed period, the payments will continue until their death.
What are Payments for a “Period Certain?”
Payments for a “Period Certain” are payments for a designated period of time. Once that time has passed, the payments will stop. The payments are guaranteed. Again, if the Injured Worker dies, the payments remaining will continue and go to a beneficiary provided for within the agreement.
What is “Life Only”?
“Life Only” payments are only for the lifetime of the claimant. There is no guaranteed period. They will cease upon the death of the claimant.
What is a Claimant/Annuitant?
This is the original payee whose name appears on the contract.
What is an “Expected Benefit?”
An “Expected Benefit” is the total amount of payment that the claimant will receive if they live to their assumed life expectancy based upon mortality tables. The calculation is based upon a normal life expectancy of an average person of the same age.
What is a “Guaranteed Benefit?”
A “Guaranteed Benefit” is the total payments guaranteed to be paid out to the Injured Worker, if living, or to a specific beneficiary if the claimant dies before all of the guaranteed payments are made.
What is “Guaranteed Lump Sum?”
A “Guaranteed Lump Sum” is a lump sum benefit payable on a specific date regardless of whether the claimant is still living at the time the payments are due.
What is a “Guaranteed Period?”
A “Guaranteed Period” is a period when payments are made regardless of whether the claimant is still living at the time the payments are due.
What is a “Life Contingent Lump Sum?”
A “Life Contingent Lump Sum” is a lump sum payment on a specific date. It is only paid if the claimant is living on the date payable.
What is a “Life Company Quote?”
A “Life Company Quote” is a document generated exclusively through the individual life company annuity quoting an application.
What is a “Lock-In?”
Lock-In is done once the annuity payment schedule is agreed upon by the parties. A Lock-In essentially locks in the cost of the annuity. When interest rates are fluctuating, the cost of the annuity can vary. In sum, the purchase price of the annuity is locked in.
What is a “Purchase Date?”
A “Purchase Date” is a date upon which the payment is to be made.
What is “Quote Expiration Date?”
A Quote Expiration Date is a date for which the quote is valid until. In other words, because interest rates change, the Quote of the purchase price can change over time. Therefore, if the contract is not purchased within a set time, a new Quote would have to be obtained. The new Quote can be better, worse or the same as the old quote.
What is a “Mode/Term?”
A Mode or Term is the frequency upon which the annuity payments will be made. For example, they can be weekly, monthly, or annually.
What is the “Rated Age?”
A “Rated Age” is an actuarial adjustment to the Claimant’s age resulting from certain physical or medical impairments that may affect the claimant’s life expectancy.
What is “Temporary Life?”
“Temporary Life” is a payment that is life contingent with no guarantee. It will end with the earlier of the claimant’s death or the last scheduled payment.
Can a Structured Settlement be cashed-out?
Yes. While an Injured Worker cannot cash out their structured settlement through the annuity companies, there are various outside companies that purchase annuities. They do so, however, at a great discount. In other terms, you could lose a lot of money in that transaction. Personally, I have never recommended doing so because of the cost.
As an Injured Worker, Where Could I Get Advice?
If you would like a free consultation regarding workers’ compensation, please contact the Law Offices of Edward J. Singer, a Professional Law Corporation. They have been helping people in Central and Southern California deal with their worker’s compensation cases for 26 years. Contact us today for more information.