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How Long?

One of the trickiest factors in claims resolution is predicting how long a given claimant will live. This is important because non-economic future damages are tied directly to the injured person’s life expectancy. It’s a tricky business. You may recall from our May 2008 newsletter, the 82-year-old woman who was awarded $ 150,000 in future pain and suffering based on an 8.8 year life expectancy only to die the very next day. Ongoing developments in medical science complicate the global question further. Nevertheless, confronting this issue is unavoidable, so what's the smart - and practical - way to think about this?

Let's start with what is known. The Centers for Disease Control and Prevention announced last year that a child born in the United States in 2005 can expect to live an average of 77.9 years, 75 for males and 81 for females. Unfortunately, this data is useless for our purposes unless the claimant happens to be an average and healthy newborn infant. But the odds are, if we’re talking about them in the context of a claim, they may not be so average or healthy.

See if you can follow this: the figure is actually calculated by assuming that all 1-year-olds, 2-year-olds, and so on through 100-year-olds have the mortality results of people in that age group in 2005, creating what the researchers call a "hypothetical [or synthetic] cohort." No matter how many times I read that, I’m still not quite sure what it means. However, I am comfortable with what experts tell me is the practical impact of all this: for our purposes, statistical life expectancy at birth is pretty much meaningless.

But what about statistical life expectancy at a claimant’s current age? Those figures are still constructed from a “synthetic cohort”, but they're arguably less squirrelly because they don’t look so far into the future. As of 2004, a 60-year-old man could expect to live another 20.8 years; a woman, 24 years.

 

Now we seem to be getting somewhere. A 60-year-old man should plan on living to 81. But not so fast, this 20.8 figure is still just an estimate. In fact, it’s the median; statistically, half of these men will die short of that number and half beyond it. If a life care plan employs age 81 as an absolute, in the vast majority of cases it will miss and it’s hard for claimants to accept either scenario: dying too soon with money left over or living longer but without enough money.

However, using probabilities offers us a more useful way to consider this issue. Apparently, a 60-year-old man has a 19% chance of hitting 90, or conversely an 81% chance of not hitting it. Should he be comfortable with a settlement plan that disposes of his last dollar at 90? Would you be? By the way, while the odds are heavily against his reaching 95, if he should happen to make it, he then carries a 22% chance of reaching 100. That is, he does if he's an average American man. But he’s no more perfectly average than you or me. We’re all richer or poorer than average, fatter or skinnier, genetically more- or less- cancer prone.

Some try to factor in uniqueness at least partially by using online longevity calculators. You answer a few dozen questions about yourself, and they give you an adjusted life expectancy. The trouble is, the science behind them can be squishy. I tried one and found some of the questions inane. It asked, for example, how many new relationships I had developed in the past 12 months. Social networks apparently do affect longevity, but one wonders if a reliable way really exists to connect new relationships formed at age 25 with how long you'll ultimately live. Similarly, you may be on a dandy health kick at the moment, eating fruits and vegetables by the bushel, but your good habits may not last.

And then, to make these estimates seem even more futile, there's the chance of a major break in the past century's trend of steadily increasing life expectancy. New research shows that in several U.S. counties, life expectancy actually decreased in the 1980s and '90s, the first time such a decline had ever been observed. The main culprits were smoking, obesity, and, in men, HIV/AIDS and homicide. On the other hand, some scientists think that advances in medicine will spark a radical increase in life expectancy to ages not seen since the Old Testament. Which leaves us…where? Confused and uncertain, I'd say. But for settlement purposes, we still have to address this question of “how long”.

When all is said and done, the most practical way to deal with it is to simply shift the risk to someone else. But who? The industry whose very existence and profitability depends on sorting out these statistics and then hedging the holy heck out of the risks: the life insurance industry. That’s essentially what we’re doing when we ask you for medical records and then secure “medical underwriting” from the annuity issuers. Their finite numerical answers take the guesswork out of our job and allow us to calculate hard dollar numbers for a given person’s future lifetime benefits.

It no longer matters how long a given 60-year-old claimant actually lives because we know what it costs to guarantee him a certain amount of income for the duration, no matter how long or short. This solves a big problem for both claimant and settling defendant alike: the cost is “x”, no matter what the outcome turns out to be. It’s one less thing to argue about in an already contentious environment.

Struggling with the question of how long a given plaintiff can expect to live? Aren’t you really all more concerned with what it will cost to reliably deliver lifetime benefits? If that’s the mission, call Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.

1 Geoff Colvin, "How Long Will You Live", Fortune Magazine, June 10, 2008

2 The most recent year for which detailed statistics are available

3 Colvin