What is a reversionary interest?
A reversionary clause may be appropriate if the plaintiff has no dependants to support. If a reversionary clause is built into the annuity and the plaintiff dies before the end of a guarantee period the remaining annuity payments revert (are returned) to the casualty company.Since the casualty insurer does not need to receive the payments on the same schedule as the plaintiff, the casualty insurer is allowed to commute (cash in) the annuity and take back a lump sum, which is just like taking back a portion of the purchase price. Accountants can calculate the commuted value of an annuity to the penny based on discounting formulas.Sometimes a casualty company will insist on a reversionary clause as a condition of agreeing to the structure; this is especially the case when the plaintiff’s benefits are used to pay expenses associated with the their day-to-day care (e.g., 24-hour nursing, medication etc.).
A reversionary clause may be appropriate if the plaintiff has no dependants to support. If a reversionary clause is built into the annuity and the plaintiff dies before the end of a guarantee period the remaining annuity payments revert (are returned) to the casualty company. Since the casualty insurer does not need to receive the payments on the same schedule as the plaintiff, the casualty insurer is allowed to commute (cash in) the annuity and take back a lump sum, which is just like taking back a portion of the purchase price. Accountants can calculate the commuted value of an annuity to the penny based on discounting formulas. Sometimes a casualty company will insist on a reversionary clause as a condition of agreeing to the structure; this is especially the case when the plaintiff’s benefits are used to pay expenses associated with the their day-to-day care (e.g., 24-hour nursing, medication etc.).
