Consumer needs assistance

[glenn]

I received the following via email. Please post your suggestions or guidance. Alternatively if you would like your info presented to him as a consultant, please PM me your info and I'll pass it along to him on your behalf.

glenn
Dear Glenn,

I would like to post a question on your discussion group. Mr ##### showed me the website to register on in order to do this. I have one question that is of paramount importance to me that only an Actuary could answer. As it involves a disability carrier or their management firm perhaps I could locate an actuary that could suggest someone that I could consult with that has this type of understanding.


I am a retired Chiropractor. The third party management company that sends me my disability checks wants to know how much I want if I should sell my two remaining polices.
I would like to find an Actuary who is available to assist me in estimating the above amount.

I am a 52 year old man in good general health but because of bilateral hip replacements had to take early retirement. My policy was bought in 1982 and provides a lifetime income that goes up 6% yearly for one policy and a half a percentage per month for the other policy. The 6% a year policy will start Jan . 05 out with approximately $3570./month. The policy that goes up a half percentage each month will pay about $7452. in January. They both continue to increase until age 65. After that they stay level for life. My last claims rep. told me it should increase until my last month of age 65. No one ever thought of that previously.

I used to have three policies. Last year I had a health scare and thought I might not live long. It turned out to be quite curable with iron supplements but until I got the right help they thought I had a heart problem because I couldn't walk without labored breathing. I had around $80,000 in debt and didn't want my wife to have to pay it if something happened to me and I figured it would also put her ahead. So I hedged my bets and sold my smallest policy for about 7 years worth of future payments. If I survived I thought I could get by on the remaining two policies. I knew I was selling at firesale prices. But then again, I thought if I didn't live I was squeezing some money out of a policy that would only pay for 6 months after my demise.

I was recently asked about selling one or both policies by the insurance company. I explained why I could never sell again for so low and why. I just built a home that has given me a much bigger mortgage than I had wanted of around $3200. I think the insurance company simply found out about it and figured I was in a pinch. I do have to admit the thought of paying off the mortgage and not paying that each month is appealing. However, my income stream is tax free. Upon receiving a lump sum I would be struggling with maintaining my debt load with a secure, most likely tax free insured bond . However, I wouldn't have to pay that $3200 mortgage each month if paid off. I still have 4 kids to send to college and child support over $2000 a month and growing by 3% yearly. There is also braces etc. Between health insurance and life insurance I go through another $2000 a month. There are also car and gas payments of $800 monthly. In other words meeting the monthly debt eats up all my income as it is. I also have two children under 3 years of age. Financial security is real important to me right now.

I very much appreciate any advise or assistance you can provide. I have a lot of family members relying on me to make the right decision. Basically, I don't think the insurance company or their representative, would really agree to a generous interpretation of the present value. However, I think I should at least give them a logical answer with the assistance of an Actuary.

Than you very much.

Sincerely,
######
You can contact him by email at nowwarat@aol.com.

[/quote]

[glenn]

Bump - anyone? I'd take a stab at it and suggest some sort of present value calculation but I'm not at experienced in the field.

Maybe even a suggestion on how to get a rouch calc for what he should expect?

[Maine-iac]

Sorry, don't have any names. Seems like he needs somebody who does expert witness work, valuing things for litigation. Maybe check some of the speakers at Expert Witness sessions at the SOA meetings, or contacting plaintiffs attorneys for a referral?

Valuing a policy for commutation should be pretty straightforward relative to valueing future income, etc.

[glenn]

So perhaps a check of the SOA directory would be in order. You can hit the directory at www.soa.org, and do a search on related fields.

The other alternative is to try emailing the webmaster at www.soa.org. Perhaps they can point you to one of their email lists of people who would know about this.

[Chuck]

Here's another idea.

I'm presuming your disability is a lifetime disability.

So get quotes on an SPIA life income from some insurance companies for the amount of disability income you're currently getting (adjusted for any tax you might have to pay on the SPIA - I haven't thought thru how that might work because I don't know the tax treatment of the lump sum you receive). You can probably google to get a lot of quotes online. Then, if you want to be generous and even more fair, you could see whether any of them will sell you a rated SPIA based on any health problems you may have which would lower the cost of the SPIA.

I think then by definition, the price of the SPIA is a reasonable price for settling with the disability company, since its a "replacement" price. Maybe bump it up a little for your trouble. At least that's a good starting point for negotiations.

Of course, you wouldn't necessarily need to buy the SPIA with the proceeds, but you could if you wanted to.

Chuck

[Vlagmar]

When I was in a coprporate area I worked with some claims people buying out policies in the past. I would determine a standard life annuity w/wo a guaranteed period and the commuted value of the remaining guaranteed payments. The claims people would make an offer based on what they thought the client would accept. They don't want to pay a market price. They do consider excess expense savings, i.e. continuing investigations etc. but the whole idea was to get suspect claims off the books at a low cost. With the indexing in these policies I wouldn't give them up.

[Dr T Non-Fan]

I know nothing about this.
Counter with some completely unreasonable amount that you know would take care of you for the rest of your life. See where that gets you.