Happy Bobby Bonilla Day!
On July 1 of this year, baseball fans everywhere (especially Mets fans) will celebrate Bobby Bonilla Day. No doubt Bobby himself will be in celebration mode–as he has been every July 1st since 2011–when he started receiving an annual check in the amount of $1,193,248.20. This annual celebration will continue until July 1, 2035, when Bobby receives his last annuity check from the Mets at the age of 72.
Just in case you were wondering, the total payout to Bobby Bonilla at the end of this road in 2035 will be $29,831,205.00. This all started in 2000 when the Mets agree to buyout the remaining $5.9 million on Bonilla’s contract. Instead of paying him the $5.9 million at the time, they agreed to pay him annual payments of about $1.2 million for 25 years, starting in 10 years, with a negotiated interest rate of 8% (remember, we’re talking 20 years ago). As a side note, the Mets had significant investments at the time with Bernie Madoff and believed they were poised to rake in large profits to offset some contract moves. We all know that did not work out very well (more on market volatility later).
In a world where highly compensated athletes making millions a year still go broke, consider that Bobby Bonilla knows that every July 1st he’ll get another check for $1.2 million dollars no matter what he does or what he spends.
So, what does this mean for claimants and carriers settling personal injury claims? Well, in addition to the pure financial advantages of deferred payments over time, structured settlement payments are highly secure, significantly stretch the amount of money being paid out, and help bridge the gaps in settlement negotiations. In addition, with a a personal injury structured settlement annuity, all future payments are received tax free by the claimant. Not even Bobby Bonilla has tax free payments!?
So just out of curiosity, what would a structured settlement annuity costing $5.9 million today look like in 25 years? Using the same 10-year deferral as the Mets, increasing at 3% per year, this would offer $428,885.58 per year, with a total payout of $15,636,852.62. If we used an Indexed-Annuity, also tax-free, with an assumed 5% increase each year, this would offer $441,135.79 per year, with an assumed payout of $21,054,131.25.
Like highly paid athletes, so too we hear about claimants who settle their personal injury claims by taking all cash, only to be broke several years later, still injured, and still facing years of future medical expenses and uncertainty. But like Bobby Bonilla’s deal, structured settlement annuities allow significant tax-free payouts over time to plan for medical expenses, lost wages, college planning, and retirement, and help prevent that premature dissipation that leads to bankruptcy and financial ruin.
In addition to all that we’ve talked about, structured settlement rates are better than they have been in years! These turbulent economic times also underscore the true value of structures. In fact, we recently published our “fortune cookie” article about the wisdom behind seizing this amazing opportunity.
For claimants, the topsy-turvy stock market underscores the value of secure, scheduled, tax-free payments that are immune to the economy’s challenges, providing ongoing income and peace of mind. For claims organizations, higher interest rates translate to better pricing and savings. In fact, today’s rates provide the opportunity to bridge the settlement gap by offering more benefits for less in all of their settlement discussions and negotiations.
As claims professionals re-focus on closures, injured individuals clamber for security and new beginnings, and CFOs – at self-insureds and claims organizations – look for savings, structures have never been more relevant or a better deal for all parties.
Structures have been around for a long time and are a proven tool for enhancing the settlement of personal injury claims. The time to structure has never been better, and the advantages of secure payments over time can be not only creative and prudent, but financially and emotionally life-changing… just ask Bobby Bonilla.