I see that on Speaking of Settlements, my friend Mark Wahlstrom has brought out the street sweeper this morning on the subject of structured settlement quoting practices. It's a good venting of issues that appear from time to time. It's also nice to see that there are others in the industry who are intent on "cleaning up the neighborhood" of some of its "racoons".
Why would any structured settlement or settlement planning professional not adequately disclose the cost of a structured settlement and the name of the insurer in the illustration in this day and age . What has it been...a quarter of a century since the two Private Letter Rulings which stated that disclosure of cost is not constructive receipt? Some states like NY, MN, FL and MA even require extensive disclosures!
On the issue of rate of return calculations the structured settlement or settlement planning professional must recognize the differential in mortality tables used between different life insurers and the resultant effect on the presentation of any Internal Rate of Return proposal. A 1980 will show a shorter life expectancy than the 2001 tables. Using a longer assumed life expectancy result in a higher internal rate of return. One annuity issuer currently illustrates a to age 90 lifexpectancy for females while another only goes to ages 85 or 86. Those 4 extra years are speculative. It's a peculiarity that you may not notice if not looking carefully. It's a peculiarity that may show a higher IRR from company A that uses a to age 90 female life expectancy assumption versus one that uses a to age 85.
A useful detailed explanation of this can be found at Structured Settlement IRR..Fact or Fiction? in 4structures.com, LLC's Structured Settlement FAQ
Another critical element and an essential best practice is to use an assumed purchase date to recognize that event sensitive payment dates are affected by funding delays. For example if annuity rates stay the same and funding is delayed two months it will cost more to fund the payments due on "Jenny's birthdays" or
Among other best practices for structured settlement quotes:
- Set an expiry date on the quotes
- Be extra careful when using daily rates.
- Clearly state that "this is an illustration and not a contract" if that is the case.
- Confirm selected benefits in writing.
- Disclose the cost. There is no need to apologize for what things cost.
What Can Happen When Things Go Wrong
- Crutchfield v Ringler Associates, Civil Action No.01-2720 (E.D. La 2002)
More on Structured Settlement Quotes
Structured Settlement Quotes July 10,2008 in Structured Settlements 4Real