Present Value
The Real Cost of a Life Care Plan

This paper presents a basic framework that enables readers to easily understand basic time value of money concepts, and how they are applied to life care plans to quantify “the real number”, i.e. the present value of medically-related compensatory damages.

Life care plans are expert medical assessments that quantify medical damages by answering three basic questions:

  1. What is a subject’s condition?
  2. What medically-related goods and services does a subject’s condition require?
  3. How much will the goods and services cost over time?

Most life care planners answer the question, “how much will the goods and services cost over time”, by calculating a life care plan’s nominal value, without considering the financial and economic impact of the time value of money.

The time value of money is the foundational concept of financial theory. It simply maintains that money today is worth more than money tomorrow. This is true because money can earn interest. Time value of money calculations seek to equate the present value of money (what it’s worth today) to the future value of money (what it’s worth tomorrow), and vice versa.

To accurately determine how much money will be required today to pay for medical requirements that will be consumed in the future, the time value of money must be considered; that is, future medical requirements must ultimately be quantified in present value.


Folio:
15 pages
Publisher:
American Academy of Physician Life Care Planners
Language:
English
Publication Date:
2016
Product Dimensions:
11 x 8.5
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Intended Audience

This paper is intended for:

  • Life Care Planners and/or other non-financial/economic forensic professionals who want to understand basic time value of money concepts which affect proper present value quantification of future medically-related expenditures.
  • Life Care Plan consumers who want to understand basic time value of money concepts, and how the time value of money can potentially impact the nominal value of a life care plan.
  • Financial and economic forensic professionals interested in methodological formulation of present value, as it pertains to the quantification of life care plans and/or future medically-related expenditures

Contents

1. Introduction
2. Life Care Planning and Nominal Value
4. The Time Value of Money
5. Present Value Method Financial Valuation
10. Rate Relativity
12. Present Value Assessment in Today’s Macroeconomic Environment
14. Characteristics of a High Quality Present Value Assessment
15. Sources

Authors and Contributors

  • Author: William L Davenport, CHFP, CSFA, MBA Finance
  • Edited by: Lawrence Lievense, FHFMA, FACMPE, FHIAS

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