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GLOSSARY

A  B  C   D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z


A


Age Rating: See "Rated Age".

Annual Premium Deferred Annuity: An annuity product wherein a premium is paid each year for an indeterminate period of time. The accumulation values and future annuity values have minimum guarantees at inception but will fluctuate with time. The starting date for the future annuity payout is also indeterminate at the time of purchase and is subject to future election by the owner of the annuity.

Annuity Certain: An annuity whose payments may be made on a monthly, quarterly, semi-annual or annual basis to the annuitant wherein all the payments are guaranteed to be made irrespective of the survival of the annuitant.

Assignment: See "Qualified Assignment"

Assignment Fees: A one-time fee that the Assignment company charges when it accepts the defendant's obligation to make future periodic payments pursuant to Internal Revenue Code Section 130. This fee usually ranges from approximately $250-$500. Many insurance companies waive this fee.

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C



Certain: A certain payment is one that will be received by either the annuitant if he/she is alive or by his/her beneficiary, if the annuitant is deceased. The term is synonymous with "guaranteed".

Certain and Life: An annuity that is payable for the life of the annuitant with a minimum number of guaranteed payments specified. For example, 30 year certain and life is an annuity with payments to be made for the life of the annuitant with a guarantee that 30 years of payments will be made irrespective of the survival of the annuitant, and then life thereafter.

Contingent Annuity: Any annuity wherein all or at least a portion of the payments called for, in the annuity contract, are contingent on the survival of the annuitant for the requirement of payment. A life contingent annuity with no guaranteed period would contractually cease payment upon the death of the annuitant.

Constructive Receipt: When a taxpayer, while not actually receiving funds, has them set aside, credited to an account, or otherwise made available, they are 'constructively received' and will be taxable. Income subject to substantial limitations or restrictions is not considered constructively received.

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D



Deferred Payment Annuity: A single premium immediate annuity whose payments do not start until some future predetermined date.

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E



Expected Income: This is the pre-injury or projected income and fringe benefits that the person was expected to earn.

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F



Federal Rule 2: This is one of the federal rules of civil procedure under Depositions and Discovery. Federal Rule 26 requests an expert to provide the following: opinions, exhibits, qualifications, compensation and prior expert testimony.

Fringe Benefits: These are benefits in addition to your direct compensation, which is usually provided by the employer. These benefits usually consist of the following: medical, dental, life insurance, 401K, retirement, vacation and bonuses.

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G



Guaranteed: A guaranteed payment is one that will be either received by the annuitant if he/she is alive or by his/her beneficiary if the annuitant is deceased. The term is synonymous with "certain".

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H



Hedonic Damages: These are general damages for the loss of the pleasure of being alive.

Household Services: The value of services provided to one's own dwelling. These services range from household chores to maintenance.

Human Value of Life: It is the value of a human life described in terms of love, companionship, comfort, affection, society, solace and moral support. A federal jury in 1985 expanded this definition to include hedonic damages.

Hypothetical Present Value: The present value of a structured settlement at some assumed interest rate that does not reflect the cost of the annuity.

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I



Impaired Mortality: An individual is considered to have an impaired mortality if his medical history includes any ailments that suggest the possibility of a diminished life expectancy. See "Rated Age".

Internal Rate of Return: A hypothetical average interest rate that needs to be earned on a sum of money (the present value) so that all of the payments called for in the future can be made.

Internal Revenue Code (IRC) § 104(a)(2): In the Periodic Payment Settlement Act of 1982, Congress adopted specific tax rules to encourage the use of structured settlements to resolve physical injury cases. Section 104(a)(2) of the Internal Revenue Code clarifies that the full amount of the structured settlement payments is tax-free to the victim.

Internal Revenue Code (IRC) § 130(c): In structured settlements, Section 130(c) of the Internal Revenue Code allows a defendant to make qualified assignment of liability and the plaintiff still retains his tax-exempt status.

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L



Life Activity Calendar: A full color, custom, three-paneled chart that graphically summarizes those personal lifestyle activities that have been reduced or eliminated as a result of an injury or wrongful death.

Life Annuity: See "Contingent Annuity".

Life Care Plan: A life care plan is medical schedule devised by either a doctor or a licensed life care planner. It consists of future medical expenses that the injured party will incur over a period of time or over their life expectancy. The plan will detail the item or service, frequency, duration and cost.

Loss of Consortium: The inability of one's spouse to have normal marital relations.

Loss of Enjoyment of Life: The deprivation or impairment of the senses or of a person's ability to engage in the activities and perform those functions that were or would have been part of that person's lifestyle.

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M



Measuring Life: The life expectancy of an individual that the future periodic payments are based on.

Medical Reversionary Trust: A trust designed to pay the plaintiff's medical needs, but upon the death of the plaintiff the trust would send all remaining funds back to the defendant.

Medical Underwriting: A procedure used by insurance companies to review the medical conditions of a particular annuitant in determining his probable life expectancy. This is a procedure that begins with matching given medical conditions of a particular proposed annuitant against known standards, and then applying this medical description to actuarial tables showing any reductions from a normal life expectancy. The decision resulting from the medical underwriting procedure is referred to as the "Rated Age" or "Substandard Rating."

Mitigating Income: This is the post-injury income and fringe benefits that the person is expected to earn. The mitigating income can be based on actual earnings or can be projected by a vocational rehabilitation consultant.

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N



Net Discount Rate: The net discount rate represents the historical relationship between inflation, wage growth and interest rates.

Non-Qualified Annuity: A form of single premium immediate annuity sold to the general public for personal use.

Non-Guaranteed: A non-guaranteed payment is one that will be received only as long as the annuitant is alive.

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O



Opportunity Cost: An economic term relating to the highest and best use of one's time, assets, or talents. For example, the opportunity cost to a plaintiff for managing his own portfolio is the amount of money he could have earned had he spent that time working.

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P



Period Certain Annuity: An annuity in which all of the future payments called for are guaranteed.

Personal Consumption: In wrongful death cases, this concept is the process of pooling household income together and subtracting what the decedent would have consumed, but for the death. The personal consumption is based on household size and has been adopted by many states.

Policy Fee: A 'small case' administrative fee charged on structured settlement annuities that are less than a specific size. This 'small case' fee is usually charged on structured settlement annuities that have a cost of less than $10,000 to $25,000. These fees, which change from insurance company to insurance company, are usually less than $400.

Premium: The amount of money spent today to purchase an annuity. Also known as the cost.

Premium Tax: A state tax on the premium (cost) of the structured settlement annuity. This tax ranges from 1% to 3.5%, but is only found in approximately 13 states. It is included within the cost of the structured settlement annuity. The application of the tax is based on the state of residence of the owner of the structured settlement annuity. The premium tax issue is usually rendered moot because the vast majority of structured settlements are placed with an Internal Revenue Code Section 130 qualified assignment, and the qualified assignment companies are traditionally located in states that do not have a premium tax.

Present Value: The present value of a structured settlement's payments is the amount of money today that will equal the structured settlement terms and conditions after considering interest rates, mortality, tax and management fee payments, protection from dissipation, inflation risk, interest rate risk, default risk, and the inflexibility of an absolutely unchangeable investment.

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Q



Qualified Annuity: A form of single premium immediate annuity that is sold to tax qualified entities only (e. g., a tax qualified retirement plan, KEOGH plan, or I. R. A.).

Qualified Assignee: An entity that qualifies, pursuant to Internal Revenue Code (IRC) § 130, to accept a qualified assignment of liability.

Qualified Assignment: A qualified assignment is an assignment conforming to Internal Revenue Code (IRC) § 130. Under a structured settlement agreement, it is a transaction whereby the original obligor (the defendant or defendant carrier) assigns its liability to make the future periodic payments called for in the agreement to a qualified assignee. The assignee company is usually related to a life insurance company. The assignee company typically purchases an annuity from a related life insurance company. The assignment normally releases the defendant from all future obligations, although this is not a requirement of the tax law. A qualified assignment of liability cannot be made without plaintiff's agreement.

Qualified Funding Asset: An asset that can be utilized by a qualified assignee, pursuant to Internal Revenue Code (IRC) § 130, to fund the future periodic payments called for in the settlement agreement and release or court order. In general, Internal Revenue Code (IRC) § 130 only allows annuities issued by insurance companies and U. S. Treasury obligations to serve as qualified funding assets.

Qualified Settlement Fund: A fund established, pursuant to a court order, arising out of a tort, breach of contract, or violation of law. It is established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and that has given rise to at least on claim asserting liability. Also known as §1.468B-1.

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R



Rated Age: The hypothetical age given to a person with a reduced life expectancy for purposes of pricing an annuity. The rated age reflects the life expectancy reduction of a seriously injured annuitant. Even though the annuitant may be a chronological 20-year-old, if he/she has a rated age of a 50-year-old it means that the life insurance company believes he/she has the same life expectancy and probabilities of survival as a 50-year-old. Annuity quotes will be based on this rated age and, thus, may significantly reduce the cost of a life annuity. See "Substandard Rating"

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S



Single Premium Deferred Annuity: An annuity which requires one premium that is paid at inception and defers all future payments to some time in the future date. They are not used to fund structured settlements.

Single Premium Immediate Annuity: An annuity in which all terms of the annuity are immediately known at inception. These terms would include the premium to be paid and the amount and timing of the future periodic payments to be made to the annuitant. This is the type of annuity used to fund structured settlements.

Standard Annuity: An annuity which has a normal or usual income stream (e. g., $1,000 per month for the life of the annuitant).

Straight Life Annuity: See "Contingent Annuity".

Structured Settlement: An agreement to settle a personal injury or wrongful death or environmental claim based on money to be paid upon settlement together with the promise of future periodic payments specific as to amount and timing. Plaintiff's claims are released in exchange for the promise by the defendant to make payments to the plaintiff. A structured settlement may or may not also include an up front, immediate cash payment at settlement. It is assumed that all such structured settlement payments will be tax free to the plaintiff under Internal Revenue Code (IRC) § 104(a)(2).

Substandard: Seriously injured claimants are assigned reduced or substandard life expectancies by the life insurance company providing the structured settlement annuity. A substandard rating may significantly reduce the cost of a lifetime annuity. See "Rated Age"

Substandard Rating: A fictitious age rating assigned by an annuity issuer to a specific annuitant based on a review of the medical records and then the application of the specific medical conditions to mortality tables. The substandard rating is generally given in terms of an increased age rating (e.g., a 22-year-old male quadriplegic rated as a 55-year-old male without any unusual medical problems). This form of rating is given exclusively in cases where the annuitant is anticipated by the medical underwriters to have a shorter than normal life expectancy. See "Rated Age".

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T



Tax Qualified Annuity: See "Qualified Annuity".

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W



Wage Loss Analysis: An analysis detailing the present cash value of lost future wages, fringe benefits, household services and future medical expenses. The report displays the losses, listing them on a year-by-year basis. The report also includes a complete bibliography and description of all the actuarial and economic assumptions contained in the calculations.

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