by John Darer CLU ChFC MSSC RSP CLTC
If you would like increasing structured settlement payments you have the option of going with an index linked structured settlement payment adjustment rider or a fixed cost of living adjustment (COLA).
Index Linked Annuity Payment Adjustment
Payments increase based on the change in the S&P 500 index between the year over year measuring points. Increases max out at 5% in any one year. Payments remain at the last adjusted level if there is downside movement in the S&P 500 between year over year measuring points.
Fixed COLA
With a fixed COLA, structured settlement payments are contractually guaranteed to increase by the stated percentage (1%-3% is most common, although up to 5%-6% may be available).
In each case the annuitant initially receives a proportionately lower payment per month than a level structured settlement payment with no COLA, using the same structured settlement funding amount. Whenever a COLA is being cnsidered you should consider the duration of the expected payments.
Let's do a comparative example.
Assumptions:
Age 25 female, normal life expectancy; $313,865 to structured settlement payments to start one month from deposit of structured settlement funding amount.
- $1,086.65/month for life with 35 years certain, level Company A
- $1,000/month for life,with 35 years certain, level Company B
- $589/month for life with 35 years certain, 2.3% COLA Company B
- $585.90/month for life with 35 years certain,with Index Linked Annuity Payment Adjustment Rider (ILAPA) Company B
Thus a structured settlement with an index linked annuity payment adjustment rider is probably best suited for a longer duration payment stream in this case.