The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: insurance buyout||Date: 12/8/2000 2:09 AM|
|Author: TTRoberts||Number: 26489 of 77407|
Christa (a.k.a. CVragel) you asked:
<< I am not sure is this the right board for asking my question, but...
My long-term disability insurance is offering me a settlement. They pay me 410.20 per month which will last for the next 16 years, until I am age 65. The offer is for a payment of $15,717.50 this year, and the same amount next year--total. I am figuring that they woud have to pay me $78,758.40 total in the monthly disbursements as mentioned for the next 16 years. But, if I take that lump sum of cash now (which is non-negotiable, take it or leave it, $31,435.50), couldn't I invest that same amount for the next 16 years and make the same if not better over that amount of time? >>
Their offer sounds like a lousy deal for you. That's because to earn that $410 per month over the next 16 years you'd have to earn an average rate of return of about 14% on that $31.4K. 14% is way too much to expect . . . especially if one is drawing any kind of income out of such an account. When drawing income from an account, one would be wise to expect a conservative rate of return to be sure that the income will be there for that period of time. 6% would be such a conservative number. And if one uses the 6% number along with the $410 per month income over 16 years, that calculates out to about $51,000 net present value instead of $31.4K. So I would argue that a fair lump sum settlement payment would be more on the order of $51K . . . not $31K.
I hope that helps some.
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|