Substandard Age Ratings
You may have heard of “Substandard Age Ratings” or “Rated Ages” if you have had a case where the injury victim had a reduced life expectancy and a structured settlement was offered to settle the claim. A “rated age” is a life expectancy adjusted age used to calculate the cost of a structured settlement. If a person receives a rated age it means that the life insurance company has decided that the person’s life expectancy is less than normal. The shortened life expectancy results in a lower structured settlement cost for the same benefit stream when compared to the cost for a person with a normal life expectancy. For example, a case we consulted on involved a two year old brain injured girl who had a rated age of sixty-four. Therefore, a life annuity, the most common funding vehicle for a structured settlement, is priced as if the plaintiff is chronologically age sixty-four. This results in a significant cost savings on the price of the life annuity.
A structured settlement consultant obtains rated ages by sending the plaintiff’s medical records to the life insurance companies that are in the structured settlement market. Usually, a consultant will send out at the most fifteen to twenty pages of records indicating any pertinent diagnosis and current medical conditions. A life company physician or medical underwriter determines the rated age after reviewing the records provided to them. I have heard many times from attorneys that none of the plaintiff’s physicians say she has a reduced life expectancy so don’t bother getting rated ages. Just because a doctor does not comment on reduced life expectancy or states there is no reduced life expectancy, does not mean there will be no rated age. While what the doctors say carries weight, the ultimate decision on whether to issue a rated age rests with the life insurance company. In most cases, the life insurance company will issue a rated age if certain medical conditions are present.
Physicians’ and Medical Underwriters’ rated age assessments can vary greatly among life insurance companies since they are based upon an examiner’s opinion and opinions among examiners will differ. For example, in the case mentioned above involving the two year old brain injured girl, we obtained rated ages with the highest being sixty-four and the lowest being twelve. The fifty-two year difference in the rated age makes a tremendous difference in the ultimate benefits to the victim. Even the thirteen year difference between the highest rated age of sixty-four and the second highest rated age of fifty-one makes a significant difference. In the case involving the brain injured minor, Pacific Life had the highest rated age and New York Life had the second highest rated age. A.M. Best rates both Pacific Life and New York Life A++ so they were both highly rated life insurance companies. The structured settlement consultant working for the defendant was not approved to represent Pacific Life. If we had not been involved in the case the defense consultant would have quoted New York Life and would not have gotten a rated age from Pacific Life. If the victim did not know about Pacific Life she would have lost a substantial amount of money.
How much would she have lost? If the rated age of fifty-one is used the plaintiff has lost $514,938 over the guarantee period and $2,439,987 over the expected period. As you can see even a relatively small variation in rated ages, such as thirteen years, can have a profound impact on a case. To add another layer of complexity, you must then compare all of the rated ages with each particular life insurance company’s rates to determine the best possible deal. It is very important that you have all of the facts when a rated age is involved.