(6) Present value per $1 of annual wage of deceased wage earners in A.I.A. sample by widow(er)'s age

Average age of widow(er):

21.

30_

40_

50_ 60

Present

value

38.474

62.435

62.920

58. 123

40.905

262.857

Total__

(7)* Average annual wage after taxes and $750 per month benefit limitation $5,375.

(8) Total Survivors' Benefits for Loss of Future Income of Deceased Wage Earner With Surviving Widow(er)s

262.857X$5.375.=$1,412,856.

(9) Estimated Future Income of the Deceased reduced to Reflect the Percentage of Income Which the Deceased would be expected to use.

Deceased's future income: $1,412,856X.825 (factor) = $1,165,606.

(10) Social security offset

(a) Distribution of Survivors by Age and Family Status.

(c) Calculation of present value of social security benefits to be received by survivors.

(11) Net (less Social Security benefits) Survivors' Benefits based on loss of future

income of the Deceased

$1,165,606-$323,588=$842,018.

EXPLANATORY NOTES

Item (1) Taken from, 1968 Accident Facts, National Safety Council pg. 14. Item (2) Calculated from the distribution in Item (1) by excluding all ages 14 years and under, all ages 65 years and older, and one-half of ages 15-24 years. Item (3)-Taken from the A.I.A. costing study Exhibit II sheet 1 (55) and page 16 (.45 x .79.41 x .21 .442).

Item (4) Column (a) distributes the estimated 24.31 wage earner deaths to age interval using the distribution in item (2). Column (b) adjusts column (a) to show only the number of deceased wage earners with a surviving widow(er) or a surviving widow(er) with dependent children or parents.

The factor 743 is taken from, Fratello, Barney, The Workmen's Compensation Injury Table and Standard Wage Distribution Table-Their Development and use in Workmen's Compensation Insurance Ratemaking, "Casualty Acturial Society Proceedings, Vol. XLII, 1955, pg. 127, Exhibit B-I.

Item (5)-Assumes that the average age of the interval is the mid-point of the interval (except for the interval 15-24) and that the age of the surviving widow(er) is the same as the deceased spouse. The present value factors are taken from the "New Jersey Widow's Benefit Table with Remarriage Contingency," New Jersey Workmen's Compensation and Employers' Liability Insurance Manual, March 1, 1967. Part 3, Section 13, pg. 10. The table is caluclated at a 3% interest rate. Item (6)-Item (4) Column (b) multiplied by Item (5).

Item (7)-Calculated from the A.I.A. cost study tables A1, A2, and A3, adjusted to reflect a 15% income tax and a 7.3% factor to limit monthly work loss to $750 after income tax. See Exhibit VI, Worksheet 5.

Item (8)-The total present value factors in item (6) multiplied by the annual wage shown in item (7).

Item (9)-The deceased's future income is taken from item (8) above. The factor (.825) measures the relativity of the survivors' estimated economic loss compared with the actual income loss of the deceased. This factor is determined as follows:

(a) Factors to reflect income tax, reduction in income reflecting income producers living expenses and $750 maximum monthly work loss are 15%, 15% and 5.9% respectively (see following Worksheets 1, 2 and 3 estimates.)

(b) Factors to reflect income tax and $750 maximum monthly work loss are 15% and 7.3% respectively (see Exhibit VI, Worksheet 5.) (c) Relativity of factors in (1) and (2) is:

Item (10) (a) The 18.06 survivors of wage earners from item (4) were distributed by Family Status using data from Barney Fratello's paper referred to in the Note for item (4)

(b) Social Security Bulletin, July 1, 1968, Volume 31-Number 7, pg. 1. (c) Calculation based on:

(1) The following assumptions of the remarriage of Widows:

(2) Deferred annuity beginning at age 62 of Widows, including interest discount rate of 3%, remarriage, and mortality.

(3) Dependent Benefits where surviving spouse has children under 18 years of age. Assumed children of Widows age 21 would receive benefits for 18 years, children of Widows age 30 would receive benefits for 14 years, and children of Widows age 40 would receive benefits for 10 years. No mortality of children assumed.

(4) Widows without children do not receive benefits until age 62. Widows with children receive benefits immediately and until youngest child is 18 or over. Item (11) The reduction of item (9) above by the amount of the Social Security Offset in item (10).

GENERAL COMMENTS

Because various relevant sample population death cases data was not published in the A.I.A. report it was necessary to rely upon other sources to estimate these data. We believe that the resultant data so synthesized would compare favorably with the sample data in the A.I.A. study were it available. However, we cannot be certain and for this reason we repeatedly chose the technical alternative that would produce the smallest additional cost when alternative choices existed.

For example, Item (4) Column (b) shows that about 74 per cent of all deceased wage earners leave at least one survivor. For our study we defined a survivor narrowly to mean at minimum a surviving spouse. Had we defined survivor more broadly to include orphaned children, dependent parents, and dependent brothers and/or sisters, the percentage of deceased wage earners with survivors would have increased to approximately 87 per cent.

Another example is that no allowance was made for increases in annual wages that would most certainly have occurred had the deceased wage earners not died.

Further, the effect of dependent children surviving the beneficiary spouse was not taken into account in determining the present value factors. Had dependent children been taken into account the effect of spouse beneficiary mortality in reducing the otherwise indicated present value factors would have been less. Had these examples of technical alternatives been included in the costing we believe that the survivors' benefits arising out of wage earner fatalities would have been higher than that shown in our analysis.

SAVING APPLICABLE TO SURVIVOR'S BENEFITS TO REFLECT INCOME PREVIOUSLY USED Method A

BY DECEASED

1. From Table 44 of the 1968 Statistical Abstract, families involving a husband, wife and children are as follows:

2. If income producer of these families is killed, then household expenses other than housing, on a pure ratio basis, will be reduced one-half, one-third, one-fourth, one-fifth, and one-sixth respectively for the family sizes listed in (1). The reduction for the average family is 35.2% (1⁄2 x 41%... +% x 12%). However, a more realistic reduction factor recognizes that expenses in an X-member family reduce by less than 1/x when the family becomes an (x-1)member unit. Using more realistic reduction factors of 40%, 25%, 15% and 12%, respectively, for the family sizes shown above produces an average family reduction of 27.6% (.40 x 41% +. +.12 x 12%).

3. From Table #507 of the 1968 Statistical Abstract, we find that household expenses other than housing, equal 55.6% of a family's total expenditure. Applying this ratio to the average family reduction produces 15%, the estimated reduction in income to reflect the percentage of income used by the decreased prior to death (27.6% x 55.6%=15%.)

b

195, 857, 000

-9, 923, 000

185, 934, 000

58,092, 000 -9, 923, 000

48, 169, 000

2. Index of Income required to provide Families of Different Sizes with Equivalent Living Standards:

3. Interpolation of Index Numbers for Average Sized Family and Same Family after Death of One Member:

3.86 members equals 149.2.

2.86 members equals 127.5.

4. Calculation of Reduction in Income Needed by Family:

a Statistical Abstract of the United States, 1967. Section 1. "Population," p. 10 and p. 36.

b Joseph Peckman, Henry Aaron and Michael Taussig, Social Security: Perspectives for Reform (Washington: Brookings Institution, 1968), Table V-1, p. 83. The Bureau of Labor Index was selected from among several indices because the income levels on which it is based are most near median family income of the several indices available.

$750 Monthly limitation after allowance for income-tax-free benefits (15% reduction) plus reduction (15%) in household living expenses.

1. $750 per Mo.=$173 per week.

2. $173/(1-.15-.15)=$247 per week.

3. From Table C-1 of the AIA Study Appendix, we find that 4.7% is the necessary adjustment factor to limit income to $247 per week.

4. Since Table C-1 is based on an average weekly wage of $129 and we are using an average wage of $133, we used Fratello wage distribution as in Exhibit VI, Worksheet #5, to get a factor based on a $133 weekly wage,

5. Following the same procedure but using $247, we get an adjustment factor of 5.9%.

EXHIBIT VIII

CALCULATION OF ADDITIONAL INCOME LOSS FROM PERMANENT TOTAL INJURIES

The estimated income loss resulting from Permanent Total Injuries extending beyond 99 weeks was developed as follows:

1. Estimated Total Loss of Income Per Case from Permanent Total Impairment.

2. Estimated Number of Permanent Total Cases in the AIA sample. (a) Number of Workmen's Compensation death cases countrywide for policy year 1963-1964 was 5,968.

(b) Number of Workmen's Compensation permanent total disability cases countrywide for policy year 1963-1964 was 589.

(c) Ratio of permanent total cases to death cases is:

589-5,968=.0987

(d) Estimated number of permanent total disability cases in the AIA cost study sample then is:

24.31X.0987=2.40

(e) Estimated cost of disability income benefits beyond 99 weeks of permanent total disability is.

2.4×100,314=$240,754

EXHIBIT VIII

3.* Social Security Offset.

(a) Average annual benefit awarded disabled worker: $1,397.

(b) Calculation of offset:

($1397/$5375) ×$240,754=$62,572

4. Estimated net (less social security benefits) additional income loss from Permanent Total injuries:

Item 1:

$240,754-$62,572=$178,182

(a) Taken from our analysis of death cost and assumes that the age distribution of permanent total disability cases is similar to the age distribution of death cases.

(b) Taken from the "Disability Table", New Jersey Workmen's Compensation and Employers' Liability Insurance Manual, January 1, 1968, Part 3, Section 13, page 12. Present value of $1 per Annum Payable until Death at 3% Interest Rate.

(c) Present value of $1 per annum payable for two years. It is assumed that there is no mortality during the first two years and also that two years is equivalent to 99 weeks. The purpose of this technical step is to reduce the indicated total disability income benefits due per case by the benefits due for the first 99 weeks of disability because we believe that these benefits are already included in the AIA costing.

(d) Self-explanatory except that the annual wage of $5,375 is explained in the death cost section of this report.

Item 2:

(a) and (b) Taken from a "Letter to Joint Industry Liaison Committee of the American Mutual Insurance Alliance and the American Insurance Association," dated June 6, 1967, written by Roy H. Kallop, Actuary, National Council on Compensation Insurance, Exhibit IV.

(c) Self-explanatory.

(d) 24.31 taken from our analysis of survivors' benefits arising out of income producer fatalities.

(e) Item #2(d) times item #1.

Item 3:

(a) Data from Social Security Bulletin-July 1968, Volume 31-Number 7, page 1.

(b) Ratio of average annual benefit awarded to average annual income (after taxes and $750/month income limitation) times item #2(e) above. Item 4: Self-explanatory.