When attempting to settle an expensive/high exposure claim for workers’ compensation benefits have you considered a structured settlement funded by an annuity? If not, our blog today will be of interest as we will put to rest three prevailing myths about settling via an annuity. Note, to abide by our one-minute blog time limit we will only provide the highlights of our presentation on demystifying annuity fears.
- Premature Death – No company wants to spend substantial monies to purchase an annuity and then have the injured worker unexpectedly die shortly thereafter, in that all the monies expended would have been paid for nothing. To address this concern the claims administrator is allowed to be named as the policy beneficiary, and in the event of a premature death any remaining guaranteed payments are to be paid back to the purchaser. In certain situations, the amount of money returned to the company may be greater than the amount actually paid to purchase the policy.
- Insolvency – Some administrators have serious apprehensions about what would happen if the annuity company were declared insolvent. Would the administrator be required to resume payment on behalf of the annuity company and thus pay twice for the same settlement? The remedy is for the administrator to request an assignment of liability when purchasing the annuity. Typically, for a nominal fee an assignment can be purchased, such that in the unlikely event the annuity company becomes insolvent, another insurance company will assume all liability and will continue to issue the structured settlement payments on behalf of the insolvent carrier.
- Catastrophic Failure – Some administrators may ask, “What happens if a catastrophic failure occurs where both the primary and assigned annuity company both become insolvent?” Fortunately, this has never happened in California work comp. However, with proper preparation the annuity can be designed to allow the California Life and Health Guarantee Association to take over responsibility to issue the remaining payments on behalf of the two insolvent companies.
A structured settlement funded by an annuity can save an employer substantial money with relatively very little risk, as annuities are typically backed by very safe investments. Unfortunately, far too many employers and claims administrators are unaware of the finer points of insurance law to alleviate their annuity fears.
Notwithstanding our ability to simplify the concepts, structured settlements and annuities should be regarded as advanced claims handling concepts and should be assigned to experienced examiners and defense attorneys. Should you need assistance with structured settlements and annuities, feel free to contact F+B for guidance.