Lump Sum vs. Present Value in Damages
Lump Sum
Total undiscounted future damages stated as a single number.
Present Value
Future damages discounted to today's dollars using appropriate discount and growth rates (Jones & Laughlin Steel Corp. v. Pfeifer, 1983; U.S. Department of the Treasury, n.d.).
Learn more about Present Value →| Dimension | Lump Sum | Present Value |
|---|---|---|
| Time handling | Nominal future dollars | Discounted to today |
| Comparability | Not directly comparable across horizons | Directly comparable to settlement offers |
| Typical use | Rarely used for future damages alone | Standard for future damages at trial or settlement |
When to use Lump Sum
Rarely appropriate as the sole figure for future damages; can be a component of reporting.
When to use Present Value
Standard practice for future damages projections at trial or settlement.
Where they overlap
A forensic economic report typically reports both: the underlying nominal stream and the present-value figure.
Frequently Asked Questions
Is the present value figure equivalent to settlement value?
Present value is the economist's lump-sum equivalent of future damages. Settlement values incorporate additional factors (liability risk, litigation cost).
References
- Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523 (1983). supreme.justia.comCase Law
- U.S. Department of the Treasury. (n.d.). Daily Treasury par yield curve rates. home.treasury.govGovernment
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