Understanding how to determine your best option when you’re looking at lump sum versus payments for medical insurance rates is pretty easy to do. The only thing that can make it a little bit more difficult is the terminology that insurance companies use. While the terms may be used interchangeably, it is important to understand which one means what. A lump sum payment simply refers to the total amount of money that the insurance company is going to pay you over an agreed upon period of time.

For instance, rather than paying you over six month’s worth of payments for an annuity, some insurance companies will stipulate finding an alternate type of income source that you would receive in exchange for a lump sum payment. Lump Sum versus payments for medical insurance rates aren’t exactly the same as they’d be under the regular fluctuating market rates situation. Under normal circumstances, a basic benefit package would consist of premiums, a standard benefit, a guaranteed reimbursement benefit, and so on. If the reimbursements were to be paid monthly, then the costs related to this would also be multiplied by the total number of months involved…

When comparing lump sum versus payments for medical insurance rates it’s good to first factor in your current investments. If you currently have investments that have a low to zero percent interest rate, you are probably going to want to consider withdrawing those funds and investing them into higher risk, but higher reward investments. In this case, you will probably have a much better retirement account and be able to live on those savings for longer. Conversely, if you currently have poor to average investments you are probably not going to see much of a difference between the two packages. The reason for this is that even with lower interest rates your cost of living won’t go down much with lower payments because your income will stay largely the same.

Once you’ve determined your current investments you can plug those numbers into a financial modeling tool called the Compound Annual Growth Rate (CAIGR) to determine how much you would need to retire at full retirement age. Then compare that with what you are currently paying under your present plans. You should be able to see that there is quite a discrepancy. If you are currently paying close to three percent on your pension each year then you are paying way too much. If you have a much higher average compounded return on your investments, you may be able to go with the three percent lump sum versus payments for your medical benefits, which means that you could be saving a significant amount of money.

This same principle holds true when comparing the cost of maintaining your present level of service with the potential cost of receiving a much larger pension. Even if you currently have a smaller monthly payment and you generate returns that are far greater than three percent, your pension will cost more over time due to the rising cost of living. On the other hand, if you had a smaller monthly payment but a much higher annual compounded return, your retirement cost would likely be significantly less.

Now don’t forget that annuities are all about insurance companies making money on your investments. If they lose that bet, they are going to have to cut some of those investments out of their portfolios. That means that you, as the investor, are suddenly going to suffer a negative impact on their bottom line. While it’s true that the annuity industry is regulated, and most insurance companies to provide you with choices regarding your payments, it’s also true that the annuity industry operates on a for-profit basis, so you are essentially trading one source of profit for another.