Recently, I wrote a blog about the case for changing the 5% discount multiplier for claims in relation to future losses.
This is, however, not the only discount which applies to claims for future losses.
Another method of discounting a claim is to claim something which you won’t use for a number of years.
For example, suppose you are assessed by a medico-legal specialist who opines that in 5 years time you will need to undergo a further surgical procedure which, if done today, would cost you $8,000.00
Instead of simply claiming $8,000.00, you need to discount your claim on the basis that you won’t actually need to use the money until 5 years into the future.
The discount multiplier for 5 years is currently 0.784. Effectively, this means that you only receive 78.4% of the total cost of the treatment. In the above example, this would be $6,272.00, about $1,700 less that the true cost.
Once again, this is due to the 5% discount multiplier rule, and the fact that there is a benefit to the claimant in obtaining the money now rather than waiting 5 years for it. It’s designed to prevent over-compensation.
The discount means that if you invested the money you receive for a period of 5 years, with a return on investment of 5% per annum, the $6,272.00 will mature to $8,000.00 after 5 years.
Once again, this does not factor in any increases in the costs of the surgical procedure in five years time.
As I mentioned in my previous blog, there is a case for lowering the 5% discount factor on the basis that it is difficult to attain an interest rate that high in the current economic climate, without resorting to an aggressive and risky investment strategy. Once again, this method designed to prevent overcompensation can often cause the claimant to be short changed.
Nevertheless, the need to defer some parts of your claim may explain why the amount you receive in compensation may be less than what you otherwise expected.
If you or someone you care about has been injured in an accident, you may be entitled to compensation. To arrange a free, no-obligation assessment of your claim, please call Stacks Goudkamp on 1800 25 1800, or alternatively, make an online enquiry.
Written by Brett Watts.
Brett Watts is an Associate in Tom Goudkamp and Ruth Hudson’s Practice Group. Brett represents people who have been injured in a variety of accidents including motor vehicle claims and public liability claims.