Life contingent structured settlement

Life-contingent settlements are subject to mortality risks. Predictability of the death of the claimant is marred and cash flows are curtailed early with the premature death of the appellant. Therefore, the life expectancy of a structured settlement is determined by in-house underwriters or medical underwriters who are sought to estimate life-expectancy of an individual liable to receive the claim. The goal of the issuer is to limit medical impairments and several levels of medical emergencies to accomplish volatility of the claimant's life expectancy which determines the longevity of the transaction. There are restraints though on a particular category of medical impairments only to exclude the life expectancy of those annuitants who have been severely impaired due to injury. The examiners also assess the life expectancy of claimants who wish to sell their life-contingent structured settlements.

Reinsurers, having developed a numerical rating system, this is extensively arrogated by medical examiners to differentiate an individual's mortality from a standard or conventional risk. A system of debits and credits factors the individual's perishability rate against a fundamental risk. For example, an individual with coronary heart disease could be debited with 150%, with 25% for a consequent bypass etc. After totaling the percentages, the net debit balance added to a fixed table rating determines the mortality ranking which could be more than 100%. The onus lies significantly on the medical examiner to determine the constitution of a standard risk since the mortality rating is determined relative to the standard rate of risk. The demographics of the claimants are slightly different when in-house medical underwriters are used. Mortality risk can be well-managed with a life-contingent insurance policy that guarantees the issuer with supplemental cash flows whether the claimant is alive or dead.