by Structured Settlement Watchdog
A number of structured settlement annuity issuers have expressed an unwillingness to "service" payments being split between their annuitants and a factoring company.
A split payment arises where an annuitant wants to raise an amount of cash that would require factoring an amount of payments less than the present value of the entire annuity.
How does this affect annuitants who have exhausted all other alternatives and have to sell structured settlement for a lump sum?
A. Insurers charge processing fees on structured settlement factoring transactions which range from $300-$1,600 per transaction. Fees are charged to the factoring company and then baked into their effective discount rate. when an annuitant sells structured settlement payment rights. The fees are charged to the factoring company. Purportedly in split fee cases one company, Symetra Life charges fees to the factoring company of as much as $1,600! The fees could be higher if there are more than two transfers. Our sources tell us that these fees are THEN typically built in to the other costs of the structured settlement factoring transaction (such as fee to obtain Court Order) and thus ultimately come out of the selling annuitant's pocket! Thus new annuitants are not burdened with fees from the small percentage that want or need to sell.
Click below for a copy of a letter recently sent by Kim McSheridan, Vice-President Income Annuities, Symetra Life Insurance Company to one of our sources.
At the time of posting Symetra had its own structured settlement factoring company, Clearscape Funding.
B. Another factoring company source states that two annuity issuers will not make split payments at all. Therefore the only way that an annuitant needing $10,000 of cash from a much larger annuity would have no alternative but to (a) keep the annuity or (b)sell the entire thing, including what the or she did not intend to sell at a potentially unfavorable rate if it were sold to "high teens discounter" Peachtree Settlement Funding. One could look at this as a "poison pill" designed to thwart the Court approval process, since the sale of all the payment rights might not meet the "best interest" test.
The question is has there been adequate disclosure of this business practice?
- Until this blog post, how many structured settlement brokers and settlement planners are aware that business practices in A or B goes on?
- How many marketing people that work for structured settlement annuity issuers know what their company does in this regard?
- If such charges apply then how is that communicated to the structured settlement broker or settlement planner when the structured settlement is placed?
- If such charges apply then how is that communicated to the annuitant when the structured settlement is placed? One of our sources states that the $300-$750 processing fee is typically not listed in the Qualified Orders.
- Are the fees described in A encouraging business practices that are indirectly good or bad for consumers?
- One structured annuity issuer queried this morning states that it can easily handle making payments to multiple payees.
- Have annuity issuers in question weighed the consequence of charging these fees and the possibility that they are passed on to their annuitant AGAINST the resulting perception created and the business it (and its agents) could lose to trust companies (where spendthrift protection is provided and liquidation of annuity is generally not an issue when a trust beneficiary needs cash)?
- Knowing now about these fees, how do the structured settlement factoring vig taking brokers and settlement planners feel now? How does the "back door fee" compare to your own vig?
Transparency is clearly warranted in the interests of consumers.