A question was posted on LawGuru recently regarding Alabama Workers Compensation. I thought some people, especially those in jobs requiring more physical labor, might find the question and response interesting:
Question: Does Workers Compensation in Alabama reward lump sums? Is it common?
My Reply: Never if it is awarded by the Judge. They will pay weekly because they can quit if the person passes away from unrelated causes. The only time you receive a lump sum is if you settle the case, and that lump sum will be no where near what you would be entitled to if you won the case and received weekly payments for your life expectancy.
Here is an example. Let’s say a person is totally disabled because they severely injured their back at work. Assume they were making $600/week and that they were 46 years old at the time. The workers compensation carrier will have to pay $400/week for the rest of that person’s life. If male, the life expectancy would be 31.82 years which equals 1,654.64 weeks (all workers compensation calculations are based on weekly benefits). The present value of 1,654.64 weeks equals 739.8297 weeks.
So, what would the lump sum value of this claim be? $295,931.88 ($400 X $739.8297). But, the insurance company would never pay this amount. Why? Let’s say they went to court and the Judge ruled against them. They would only have to pay $400/week. If the person had a heart attack and died after 7 years, they would have paid out $145,600.00 over 7 years, not $295,931.88 immediately. They win! There are some other reasons why they won’t pay the full lump sum as well which I won’t get into here.
Most cases such as this end up resolving for an amount in the $90,000-$150,000 range. There are exceptions.