Annuities for Lost Household Services Using Healthy Life Tables

Abstract

Abstract Forensic economists have used Healthy Life Expectancy: 2018 Tables (Kurt V. Krueger, 2020) in valuing the loss of household or personal care services due to injury or death of their supplier. The tables are used to decide how far into the future to project the loss. We focus on two easily avoided errors that may arise in that decision. First, the present value (PV) of a healthy life annuity (HLA ending when death occurs) falls short of the PV of an annuity certain for the healthy life expectancy (HLE), at any positive interest rate. Second, services are lost only during the combined healthy life of the supplier and life of the recipient. The expected PV of the supplier’s healthy life and the recipient’s whole life falls short of either. The paper illustrates the size of these potential errors for various ages of the two people and net interest rates of 0-3%; the errors can be significant. We provide an Excel workbook at the Journal of Forensic Economics website that allows the user to avoid both errors for calculating the PV of relevant (healthy) life annuities, for any of the demographic groups covered in the HLE tables. The paper gives formulas used for the present values of the life tables.