I want to find out how much to ask from an insurance company that
wants to buy out a disability policy and pay me one lump sum instead
of a lifetime monthly payout. In other words, what is the present
value of my policy? Who or where do I go for assistance? I am 52 yrs
old,receive $3,572/month and have a COLA of 6% to age 65/level after
that.

---

Clarification of Question by ota-ga on 19 Nov 2004 02:13 PST

In regards to Hedgie-Ga I want to offer an apology for sounding
dismissive. I've re-read my posts and besides poor spelling and
grammer, I should not sound derisive of a person of sound intelligence
and good intentions.
That said, your new posting is another example of what I have tried to
describe.Perhaps I have too much time to read endless copies of Time,
Newsweek,Forbes,Fortune,The Economist,Vanity Fair, Scientific
America,Business Week,Wall Street Journal,Financial Web Sites and
their daily emails,etc.,etc.,etc. The attached article I've read
literally a hundred times in one formor fashion after another.
But you see, the value of my disability policy is mostly intrinsic,
ie., it is what it is regardless of hwwat the dollar,gold,Asian or
European Currencies or other Commodities are doing. That can be
prepared for with some education plus some luck. That's what financial
planners do.
My policy I stated in a clarification goes up 6% annually, compounded
until age 65 at which time it stays level at the monthly income that
has been reached at age 65 and 11 months. ( the 11 months was told to
me by one of my past claims examiner though even they differ in
opinion on the finer points of what constitutes the laast and highest
payment level. This is tax free as I paid it as a business expense
over my professional career rather than a deduction.(IRS ruling) 6%
compounded doubles every 12 years.( It even gets a little more
technical as one policy goes up one half of a percent each month which
actually compunds out at a bit greater than 6% annually)  So I will be
given a certain amount of combined dollars given an undetermined but
guessed at lifetime. I think I stated that I have an orthopedic
problem that  is the predominate helath concern and some weight gain
that resulted secondarily. As I have normal blood preassure,tend to
higher cholesterol levels, but don't have any other  outstanding
health concerns other than the stress constant screaming and nagging
lttle children provide, I hope to be around for a couple of more
decades at least. What I am trying to figure out is not so much the
cost of living but how many dollars in a lump sum can I successfully
ask for instead of being paid as I presently am for a lifetime.
I  want to give the insurance company a figure that is realistic for
me and won't neccecssarily be a waste of time for them to look at. I
think they want to see a firesale , as I call it, but that is not what
I want to provide them but a fair number as I don't know what internal
objective they are trying to achieve. Perhaps they are getting ready
to sell their division and want to clean up their numbers. Who knows?
(I wish I did) It just won't be because I am making them an offer they
can't refuse like I did last time. I stated the reasons for that
previously.
Again, I am no one to rate someone elses intellectual property. I was
uncomfortable doing so as I certainly never made a report as concise
and extensive as you did. It just didn't go to what I am hoping for
and that is my fault that I didn't explain myself clearly enough.

This question - cash value of an annuity is a complex issue 
  - an industry, really, and I do recommend that you use services
 of a professional -- in particular a fee-for-service financial planner.

 I also want to stress point 3 in Terms of Service (link on the bottom  frame)
 which says: This Not Professional Advice. Information provided via
the Services is not intended to substitute for informed professional
medical, psychiatric, psychological, tax, legal, investment,
accounting, or other professional advice.
 
 That said, some general info may be useful:
 
 Here is general guide to settlements
 
 http://www.settlement-guide.com/
 
 Please do differentiate the 'ads by google' - which are numerous on this site
 and free information  - which you access in the 'navigation box' - namely
 
 Home Page
 Should You Sell?
Laws & Regulations
Your Options
Finding a Broker
Resource Directory 

  A prudent strategy may be to ask for quotes for buying the annuity
which would be equivalent to what you have.
 The difference between selling one you have
  and buying a similar one, should not be too great.

Here is general info:
  
 "..  Annuity is a contract between you, an annuity owner and an
insurance company. They can be purchased with a single lump sum or
receive regular contributions over time. Your lump sum payment can be
made from existing savings ..."
  
  http://www.globaldirectsvcs.com/Annuity.html
  
  Your decision has tax implications
  http://www.irs.gov/publications/p939/ar02.html
  
  and also depends on future of currency - unless you invest the settlement,
  on the projected interest rates and rate of inflation. Right now, the value
  of dollar in question, due to growing deficit.
  Nevertheless, standard annuity tables  do exist and are described e.g. here:


Use compound interest and annuity tables when making the
lease/purchase analysis.  Three commonly used tables are described
below.  These can be found in this SAM chapter's Appendix, Annuity
Tables.  Choose the right set of interest tables according to whether
the period is monthly, quarterly, semiannually, or annually as noted
on the top of each page.
  http://sam.dgs.ca.gov/TOC/3700/SamPrint.htm
  
  Due to the current  risks associated with value of dollar
    http://www.globalpolicy.org/socecon/crisis/2003/0919imfdollar.htm 
    
    You will not wan to keep the settlement in saving account or money market.
    The type of investment you choose may be most important facto. 
    There will be lot of the financial planners happy to advise you
how to invest. It is important to understand different types of
professianls advisors:
    
    The search term: financial planner for fee

    brings pages like this one
    http://www.napfa.org/ConsumerServices/whyfee.htm
    
    http://invest-faq.com/articles/fplan-choose-planner.html
    
    which explain that 'financial planners' , advisers, counselors,
who do not charge fee earn their living from commissions on
instruments (mutual funds,..) they recommend (sell).
    Same people (me included) consider that a conflict of interest recommend
  that you use the 'for-fee' proffesioal - and then invest in the
no-load funds (or real estate., etc ) directly.
    
    
    In principle, advantage of selling future payments for current
settlement (cash value) has to do with
    mortality and actuary tables, projected changes in lifespan,
interst rates and inflation.
    
    There are complex calculations and models, and market instruments
    take into consideration these changing conditions.
    For a consumer - practical approach is:
    
  "..  Shop around. An annuity's fixed payout is generally based on
your age and long-term bond rates when you buy in. But calculations
and fees can vary widely by company. A 70-year-old woman spending
$100,000, for example, might currently get as much as $769 a month, or
as little as $681, according to an independent survey by Comparative
Annuity Reports (www.annuitycomparativedata.com). ..."
  http://www.usnews.com/usnews/biztech/articles/011022/annuities.htm
  
  An alternative to using services of financial planner would be to
invest the proceed to NO-LOAD mutual funds - Here is a popular article
explaining load vs no-load funds
  
  http://www.fool.com/school/mutualfunds/costs/loads.htm
  
  SEARCH TERM : no-load mutual fund
  
  such as Fidelity family of funds 
  https://www.fidelity.com/homeframe_pr.shtml
  
  and similar, recommended e.g. by 
  http://www.iclub.com/investware_welcome.asp
  
but that really is a diffeent question.

 To use services of unbiased planner, is the best way to
decide which choice is best for you in your specific situation.
  
  Feel free to ask for clarifications, as needed.
  
  Hedgie

---

Request for Answer Clarification by ota-ga on 16 Nov 2004 15:38 PST

Dear  hedgie-ga,

Thank you for your rapid response. I've posted more information on the
comment site but I'm afraid your report was an excellent school report
but added hardly anything an educated man of my age would have already
known about. I think you've taken a subject that you approached
acedemically but have no real world experience in. I did note you are
a extrremely intelligent person. I could hardly believe you have
written so many answers with very technical sounding names. So there
is noquestion of your smarts or pointing out these websites. IF they
weren't a thin disguise for advertising they were hardly the type of
material I would wish to spend an evening on. To start to refer me ot
websites on how to find a financial planner looked like any of the
hundreds of articles I've been exposed to over the years either
professionally or in popular magazines. Thank you for the effort but I
don't think you are just the right researcher for this subject. It was
like you just through out alot of articles that anyone could find with
any search engine. I need someone who has done this before.  Thank you
very much anyway for making the effort.

---

Clarification of Answer by hedgie-ga on 16 Nov 2004 17:53 PST

Ota,
 you are right that my professional expertise in in technical areas
rather then in the financial palnning- but I would dispute contention
that I
" have no real world experience in " in making this type of decisions myself.
 
Perhaps I should have left this question alone.  It is dificult for a
researcher to decide, based on 6 lines question, what is askers level of
knowledge and experience, what may be usefull, what he knows and he is looking for.
Based on life expectancy tables
http://www.annuityadvantage.com/lifeexpectancy.htm
you have 25 years life expectancy and, apparently, you are able to calculate
what expected pay outs of your policy in that time would be. That is
the calculation of the type research_help-ga  did. I considered that,
and concluded that that is not 'it', not really a useful answer.
You are aware that other circumstances, things you posted in the
comment, are relevant.  That, I believe, is 'real life' vs the school
exercise.

 Usually, complex and high priced questions, like this one, benefit from 
 short series of clarifications -  that's what I was expecting will happen. 
 However, I respect your right to decide that there is not much you can expect
from such a dialog - and just rate the question. Still, I wonder what kind
of 'ideal answer'  you expected or may exist in this situation.
 
It really does require service of a professional who takes time learn
and evaluate all your circusmstances. Perhaps one can look at the ads,
which indeed are numerous in all these pages, as a resource, a way to
find qualified help. Ultimately, one has to 'shop around' to find out
what a market value of
an object is. It applies to annuity contracts as well.

Hedgie

I read each and every place the researcher wanted me to look and each
and every one provided nothing more than the type of information
almost every educated, profefssional of age 52 would be familiar with.
I nned information cominig from someone wh has done this for a living,
ie. someone whose been in the insurance industry or an attorney that
has been involved with settlements or an acturial type of person. This
was like a shotgun of basic information a beginner looks for who is
starting out in life. And the more serious information was so
technical no one but a professional in that field would care to read
and understand it. It's wasn't practical. Perhaps it would get an A in
High School but didn't merit my money as I learned nothing and felt no
more confident in what to do or know. The commentator struck me as
someone who understood this from a "real world" prospective.

This was what any really smart , educated person could come up with on
any subject they weren't familiar with. Nice try but no cigar. He/She
took their best shot but I could tell they really weren't personally
familiar with the subject.

You really need to provide some more info:  what discount rate to use
for the NPV calculation (i.e., 4%/return?), also you need to designate
the term of the cash flow stream (how long will you receive a payment
... you info indicates a 6% COLA thru 65 & level after that ...
however, you don't indicate how long the income stream will continue. 
The NPV is approx $100,000 through age 65, starting at age 53 w/ 6%
annual increase using a 4% return.  Obviously the actual NPV is
greater if you use a smaller rate or continue the rev stream beyond
65.
Hope this helps,
RaeLee

I have done a basic NPV calculation using a 5% discount rate (what you
could earn in a safe conservative investment).  Since this is a
lifetime monthly payout, I assumed it would continue 30 more years
until age 82.  The approximate NPV is $1.1 M.

I should add that my current income is tax free.I would have to
include this in my thinking about what that means for a future that my
earning would either be taxable or I would more likely use a safe
insured non-taxable municiple bond.
My income contues to increase 6% yearly until the end of age 65 at
which time the benefits would continue for life at a fixed rate set by
I believe the last month of age 65. My disability is mostly from
bilateral hip replacements so that shouldn't kill me early, but the
extra 40 pounds I've taken on  might help it along.
I must consider that I have taken on a mortgage that is approximately
$3200 a month.  I have a third policy forabout $8,000 per month. I
would like to keep that unless I received enough to really feel
secure. I don't think that is likely. I sold my smallest policy to
them for 7 years worth of combined  future payments. They got it for
firesale prices because I thought I was going to die. It turned out to
be a fairly easy problem to fix and its of no concern to me now but at
the time I had about 90,000 in debt and wanted to see it paid off so
my wife wouldn't be strapped with figuring it out later. I didn't sell
any others as I was hedging my bets. Now the company is making
inquires again and I think they know I took on a big mortgage and I'm
a bit fearful of losing the home.T he building costs just kept going
up. So if I received enough to pay off this mortgage of $450,00 and
still had enough left over to draw on to help me send another 4 kids
to college, braces, health insurance for $1200 a month, car 600, life
insurance 800 etc,etc. Also there will be some dickering over the
price with them so you have to start high.

Ota
  I do not think that have been fair:

  When I was answering your question, I knew your age, but not that you are

 "profefssional of age 52 " [sic] 

 you added that, and other info later. 

 Fact, I was trying to explain, is that fundamental value of a policy
depends on future interest rates - which no-one, not even an actuary
or attorney  or insurance professional, knows for sure.

 At this time, the value of the dollar, as well as 'average lifespan' are
 likely to change in unknown but dramatic way. According to this -
possibly biased - but possible scenario
http://www.axisoflogic.com/artman/publish/article_12991.shtml
 value of dollar can drop by 40% in the near future. That would lead
to dramatic increase in the interest rate. To anyone, taking a
mortgage or paying of a mortgage, or bying or selling bonds, that is
the most relevant fact.
I have provided links to resources, to people  who buy and sell such
instruments, policies like yours. They are a sample of the  'market'
and
market's valuations of the uncertainty involved in your decision.

I am posting this comment to point out what you should have included
in your question - namely that your do not want to hear about this
common sense, practical approach to your question. May be some other
researcher will
be able to figure out what answer you are hoping for.