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Application
Market Shop
When a specific annuity plan has been chosen, it is then time
for the experienced Structure Broker to utilize all available
tools in order to obtain the best rates at the time of purchase.
Some life insurance companies are more competitive in one
type of annuity. By producing a market shop of the available
life insurers, we can split the annuity with two or more insurers
to take advantage of their specialties.
As an example, if we are shopping a Single life 20-year annuity,
level monthly payments, one company may have the lowest cost
on an immediate short term plan of 10 years and another may
have the lowest cost for a deferred long term 10 year plan.
The result is that placing the annuity with two insurers rather
than only one would increase the income stream. Lump sum payments
are also considered when placing a market shop as they may
be placed with a third insurer. Because we have access to
the most current prices and have over 20 years experience,
we can often provide a higher income stream by knowing the
insurers so well.
Age impairment Ratings
When utilizing the market shop, an important tool to consider
is the rate-ups. With catastrophic injuries, there is a reduction
in life expectancy compared to the average life span. An assessment
of the plaintiff’s medical reports will provide us with
their opinion on any reduction in life expectancy.
Take JOHN SMITH for example that is 20 years of age. The life
insurers predict that John will probably die 35 years earlier
due to his injuries. When pricing life contingent type plans,
this will either increase the payment stream or lower the
cost depending on the variable, because the life insurer takes
the risk that the plaintiff is actually 55 years of age for
annuity pricing purposes and will pay John Smith for a shorter
time frame. Should John outlive the life insurers predicted
period, the payments continue in a life stream for the duration
of his lifetime, at no cost to John Smith. This is the risk
that the life insurer takes, not the plaintiff.
Inflation protection
As discussed in an earlier section, the
payments can be indexed at a fixed
rate of 1% - 6% compounded annually, or linked to the Consumer
Price Index (CPI) to offset future inflation and the possibility
of dissipation of the income stream. There is also another
way to offset the effects of future inflation in the Structured
annuity. By taking advantage of lump sum payments in combination
with a short or long term income stream, may be used to
replace required machinery, medication or as a hedge against
inflation.
There are two types of lump sum payments available; with
a life contingency and without. If, for example, we have
a man that requires the replacement of his van every 10
years, a series of lump sum payments can be made to replace
this cost. Because he requires the payments personally,
there is no need for the lump sums to run beyond his lifetime.
There is a need for both types of lump sum payments, and
with the assistance of a skilled and experienced Structure
Broker, the design of the annuity will be a simple task.
Age impairment ratings or rate-ups can also be utilized
in lump sum payments when attached to the life contingent
stream.
Minors
Even though the Income Tax Act protects
the personally injured minor from taxation on accrued interest
until the age of 21, there are some important reasons for
utilizing a structured annuity for a minor. Structured Settlements
are always free of income tax, and can therefore extend
the tax-free period to a minor beyond the age of legal maturity.
Very few 18-year-old teens have the experience or maturity
to deal with and manage large sums of money. Because of
the age and perhaps the type of injury, the minor lacks
the capacity to advise his counsel to consent to the terms
of the settlement. The Public Trustee has a solid understanding
and experience with the policy guidelines about structuring
for minors.
It is important that the Structure Broker or counsel include
the Public Trustee’s office in the early stages of
settlement in order that there are no delays in the closing
details. In cases where the minor has sustained serious
and permanent injuries such as brain injury, quadriplegia,
or paraplegia, the structured settlement is even more of
an asset to the minor. The more serious the injury, obviously
the higher the settlement figure and therefore a higher
marginal tax bracket. It is required that a minor or mentally
unable person require the approval of a Judge in order for
the settlement to be complete.
Assignment of Ownership
There is times when the Casualty Insurer
cannot own the annuity contract. We have available to us,
Assignment Companies that will take on the liability and
ownership of the annuity contract for a fee of $2,000 -
$2,500. There is a legal document called an Assignment and
Assumption Agreement and Release that states that both the
Assignment Company and the Casualty Insurer agree that the
assignment company will take on the new ownership and all
of its liabilities of the annuity contract, still meeting
with the requirements set out by Revenue Canada.
Each Assignment Company is associated with a life insurer
again having an asset base of over $15 billion in order
to maintain security in the payment stream. This type of
annuity is useful when dealing with self-insurers and Medical
Malpractice cases.
We can forward copies of these Agreements upon request.
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