Most people have heard of personal injury claims but very few would understand what quantum is.
…and they really should – behind liability, it's the second most significant determinant of a successful claim.
You’d be forgiven for thinking quantum has something to do with physics. But it nowhere near as difficult to wrap your head around.
Simply put, quantum means an amount. So, it refers to the amount of compensation a person will receive for a personal injury.
As we learn through this four-part series, there are a number of areas under which you can determine what your quantum is and in turn discover how much your claim is worth.
The first topic we will be covering is a person's future economic loss. This area often makes up the most significant percentage of your quantum.
[RELATED: Calculate your Future Economic Loss using our worksheet here)
What is Future Economic Loss?
Future Economic Loss relates to an injured person’s ability (or inability) to work after an accident.
Simply, it covers a person's reduced income.
For example, this area of compensation might cover a person’s:
- Total inability to return to work
- Fewer hours or a move to part-time work
- Change in duties or job
- Inability to progress career through promotions or job changes
..up until they retire.
How much can you get for it?
The amount awarded for future economic loss varies considerably.
It depends on five major factors including:
- The extent of injuries and their lasting impact on the ability to continue working
- Pre-employment history
- Likely career trajectory
- The ability to prove the above three factors; and
- Age at trial or settlement (how far you are away from retirement).
Example 1 – Bicycle-car accident, long-term soft tissue injury
Olly was on a bike when a car switches lanes and pulls in front of him. Olly runs into the back of the car, falls off his bike and hits the ground.
Hospital X-rays show ligament damage to his injured ankle and a cracked left wrist, which is put in a cast. Despite having worn a helmet, Olly has a concussion and is kept in hospital overnight. Olly is advised to begin a physical therapy on his ankle and wrist once its removed from its cast.
He misses out on a week of work.
Two months of physical therapy has had little impact on his ankle. He found he had continuing pain for many months but was mostly able to work through it.
At age 29, he has most of his working career as a Teacher ahead of him. While he never lost the ability work (beyond his week off), Olly felt he lost work opportunities because of his continual pain meant he couldn't go the extra mile in his job. This reduced the likelihood he would be picked for new job or promotions. As it's difficult to quantify missed job opportunities, Olly's lost future earning capacity couldn't be calculated mathematically.
As a result, the judge awarded a small estimated figure to compensate his loss. Olly was awarded $40,000 in lost future economic loss. This is largely due to his young age. Otherwise, his injury has had only minor impact on his future economic loss.
Example 2 – T-Bone collision, permanent hard injury
Jane cycling to work one morning. As she rode alongside a row of parked cars the door of one car unexpectedly flew open. Jane was thrown over the front of her bike and head first into the door. Jane suffered severe whiplash, ligament damage to her left knee and broke both wrists as a result of the incident. Jane required surgery to stabilise her wrist fractures which required her to take three months off work.
Jane was 35 and worked a registered nurse. She was in line for promotions to managerial positions. Because of the injuries suffered in the accident, she has difficulties working for long periods of time. This means she is unable to put in the hours required for her promotion. She has also found that she struggles to complete her clinical duties and cannot accept overtime hours.
As Jane’s weekly income is reduced (because she cannot accept overtime), she is $300 worse off every week. Adding to that, had Jane been successful in her promotions she would have added $500 to her weekly wage. Combining this and multiplying it by the number of weeks until her retirement, Jane's economic loss totalled $657,600.
What factors influence it?
How is someone's future loss of earnings calculated for personal injury claims?
Someone's future loss is usually calculated by looking at four things.
- 1A person’s pre-injury weekly salary is compared with their pay at trial (or settlement). This difference will fairly quantity any reductions in work hours. Understanding weekly changes in your wage is important, particularly, if the injured person has had to move to part-time work or is no longer able to take overtime work.
- 2The person's maximum salary over the course of their career is determined. This decision will quantify any lost job opportunities. A difference between maximum earning potential and the pre-injury wage is determined.
- 3An amount is then deducted from your weekly earnings to compensate for the fact you are likely to accumulate interest on your salary. This deduction is known as applying discount rate (see below). In Queensland, we use 5% multiplier.
- 4Finally, the superannuation you would have lost is accounted for based on your maximum earning potential.
How future economic loss is calculated sounds complex, but if you follow our worksheet it breaks down the steps into easy to understand (and action) summaries.
Want to know how to calculate your future economic loss?
Our FREE guide shares the secret formula insurance companies use to discover what your future earning capacity.
Not downloading the guide may be the most expensive mistake of your life.
In exceptional circumstances, calculations cannot be made.
When a person’s earning capacity is difficult to determine (such as in children’s cases, or where a person hasn’t taken time off work) a court will award a global sum.
This a blanket award of money determined by the trial judge. Such a case was evidence in example 1 above.
More on discount tables...
The discount rate relates to the rate of return that may be expected on money awarded in a lump sum settlement and is expressed as a percentage per annum.
A discount rate of 5% implies an expectation that the money, when invested, will achieve a return of 5% per annum.
Discount rates are used when assessing someone's future economic loss.
They are essential in determining how much needs to be paid now to compensate for amounts that would have been received in the future.
[RELATED: Calculate your Future Economic Loss using our worksheet here)
What evidence will you need?
Critical pieces of evidence required to prove your future economic loss include:
- Pay summaries
- Salary estimates or your current and future jobs
- Examples of colleagues who have progressed and their wages
- Average retirement age in your industry
- Medical reports on your likelihood of returning to work
- Pre-injury medical history
Like the saying – don’t put all your eggs in one basket - don’t forget to read the rest of the articles in this series on the other areas of compensation available to you.