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February 09, 2010

Structured Settlement Annuity vs Single Premium Immediate Annuity (SPIA)

by John Darer® CLU ChFC MSSC CeFT® RSP CLTC

What is a Single Premium Immediate Annuity?

A Single Premium Annuity Contract or "SPIA" is a contract between a person or entity and an insurance company. In exchange for the consideration of paying in a lump sum of money to a life insurance company, the annuitant is guaranteed to receive a series of payments over a specified period of time, possibly for the lifetime of the annuitant, or the last to die of two spouses. The amount of the payment is determined by both the current interest rate at the time the contract is issued and by choices made from a wide variety of payment options. Once the contract is issued, the annuity payments are fully guaranteed for the period of time the person or entity has chosen.

A structured settlement is a litigation recovery management alternative that involves settlement claims for future periodic payments that are funded with a qualified funding asset. The asset may be obligations of the United States government or most commonly, in the form of a customizable annuity that may provide one or more payment streams to the annuitant,  the annuitant and his or her spouse, the annuitant's trust, or to survivors.  Market based structured settlement options are also available.

SOME OF THE DIFFERENCES Between a Structured Settlement and Single Premium Immediate Annuity  (SPIA)

A. Required Start Date

  • SPIA payments must begin within 13 months of issue.
  • No such requirement applies to structured settlements.

ADVANTAGE: Structured Settlement

B. Are There Taxes on Payments?

  • A portion of each SPIA payment you receive IS SUBJECT TO INCOME TAXES and a portion is considered a nontaxable return of premium.
  • Structured settlement payments that qualify as damages paid for personal physical injury or physical sickness are received income tax free. (see IRC 104 (a))
  • Even if your financial advisor shows you a SPIA quote with the same amount of monthly payments as structured settlement it's like comparing apples and oranges. Yeah, they're both fruits, but you must calculate the after tax benefit on the SPIA for an accurate comparison!

ADVANTAGE: Structured Settlement

C. Are Multiple Payment Streams Possible in a single contract?

  • Most life insurance companies limit SPIA payment streams to one payment stream per contract
  • With a structured settlement one or more different payment stream can be combined in a single contract, thus reducing the adminstrative burden for the annuity issuer and the payee.
  • Moreover structured settlement payments can be designed in a number of different ways, immediate, deferred, income payments and lump sum payments, step payments, fixed increases and more. For more info on the types of structured settlement payments click here

ADVANTAGE: Structured Settlements

The Rated Age Advantage on Lifetime Payments or Life Contingent Payments?

  • Rated ages offer a discount on the cost to provide lifetime income. Said another way, a rated age boosts the amount of the annuity payment for each dollar spent on a lifetime annuity
  • Most structured settlement annuity issuers offer rated ages.
  • Some issuers of SPIAs offer rated ages. Even if a SPIA issuer offers rated ages, the rated ages offered to the class of annuitants eligible for structured settlements is generally more favorable than offered to SPIA annuitants 

 ADVANTAGE: Structured Settlements

If you Need Liquidity Down The Road What Are The Options With a SPIA v Structured Settlement?

  • Both structured settlements and SPIAs are long term commitments offering financial security
  •  You should not be in a structured settlement or SPIA if your time horizon is only a couple of years.
  • There is a ready market of individual investors and companies who are willing to purchase the rights to receive both SPIA and structured settlement payments that you may be willing to sell. Some are ethical and some are not so ethical. Beware of wolf applies!
  • in order to liquidate structured settlement payment rights you must go through a Court where a judge must approve that the liquidation or transfer of payment rights is in your best interest. This is for your protection and the majority of states have a structured settlement protection law on their books.
  • Liquidation of SPIA payment rights does not involve Court approval. While some may perceive this as advantage it just removes a layer of consumer protection because the business practices companies that are involved in the business of "factoring" are virtually unregulated.
  •  You can sell all or only a portion of your structured settlement or SPIA payment rights.

ADVANTAGE: EVEN

Without knowing all the facts of the particular situation it is hard to say if the financial adviser committing malpractice in the scenario described by my industry colleague. Presuming that a qualified settlement is not being used and from what I understand it isn't , one thing is for sure . Once the plaintiff signs the release with the defendant he or she has forever lost the opportunity to structure the settlement.  CAVEAT EMPTOR!

USEFUL LINKS

Structured Settlements | Tax Benefits of Structured Settlements (4structures.com)

Tax Advantages of Structured Settlements | Taxable Equivalent Yield Chart (4structures.com)

Structured Settlements | What Is a Structured Settlement? (4structures.com)

Last updated October 3, 2023

 

 

Posted at 04:11 PM in Albany New York Structured Settlements, Annuity FAQ, Attorney Responsibility to Clients in Settlement Planning Process, Bowling Green Kentucky Structured Settlements, Bridgeport Structured Settlements, Bronx New York Structured Settlements, Brooklyn New York Structured Settlements, Buffalo New York Structured Settlements, Chicago Illinois Structured Settlements, Connecticut Settlement Planning, Detroit Michigan Structured Settlements, Greenwich Structured Settlements, Hartford CT Structured Settlements, Jacksonville Florida Structured Settlements, Lexington KY Structured Settlements, Long Island NY Structured Settlements, Los Angeles CA Structured Settlements, Missouri Structured Settlements, NC Structured Settlements, New Jersey Structured Settlements, New Orleans Louisiana Structured Settlements, New York Structured Settlements, Newburgh Structured Settlements, News About Structured Settlements, North Carolina Structured Settlements, NYC Structured Settlements, Oklahoma Structured Settlements, Philadelphia PA Structured Settlements, Plaintiff Attorney Settlement Issues, Rhode Island Structured Settlements, South Carolina Structured Settlements, SPIA, Structured Settlement Annuity, Structured Settlement Information, Structured Settlement Payments, Structured Settlements, Structured Settlements Florida, Structured Settlements in Florida, Structured Settlements in Illinois, Structured Settlements in Ithaca New York area, Structured Settlements in Louisiana, Syracuse Structured Settlements, Tulsa Structured Settlements, TX structured settlements, US Department of Justice, VA Structured Settlements, Washington Structured Settlements, White Plains Structured Settlements, WV Structured Settlements, Yonkers Structured Settlements |

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Guide to Structured Settlements 2023

  • What is a Structured Settlement? What You Need to Know
    Structured settlements and what you need to know about them including a helpful introductory video featuring 2023 A.M. Best Client Recommended Structured Settlement Expert and Registered Settlement Planner John Darer® of 4structures.com® LLC
  • How Do Structured Settlements Work? How Structured Settlements Work
    How structured settlements work, including 4structures.com LLC's super helpful structured settlement flow chart/diagram showing how structured settlements fit in on the spectrum of settlement planning solutions.
  • Rated Ages and Structured Settlement Cost
    Rated Ages for Structured Settlement Annuities present advantages to all parties. Shift the mortality risk to a life insurance company whose business it it is to assess mortality risk to price its life insurance and annuities. Rated ages boost your structured settlement annuity benefit per premium dollar, or your yield on lifetime payments. Rated ages help to reduce the cost of funding a Medicare Set Aside arrangement where a Structured MSA, is being used { WCMSA LMSA or NFMSA].
  • Structured Settlement Annuity Companies 2023
    Which life insurance companies issue structured settlement annuities going into 2023? A list of current structured annuity issuers, the location of their home offices and their financial ratings from A.M. Best, Moodys, Fitch, Standard & Poors and/or other Tier1 NAIC ratings, with links to their websites and other useful information.
  • Treasury Funded Structured Settlements
    Treasury Funded Structured Settlements are a settlement option for the most conservative using the OTHER permissible qualified funding asset under IRC 130(d), United States Treasury Bonds in addition to, or instead of, structured settlement annuities. Treasury Funded Structured Settlements can also be used to fund installment sales, also known as structured sales and other non qualified structured settlements.
  • Compare Structured Settlement IRR to Other Settlement Alternatives
    Use the Taxable Equivalent Yield chart to help compare the Internal Rate of Return (IRR) of a structured settlement to other alternative or complementary investments. Need help with the chart? Call 4structures.com® LLC at 888-325-8640
  • Structured Settlement Payments | Types of Structured Settlements
    Ways You Can Structure Your Settlement Payments. With a structured settlement you can have more than one type of payment in a single contract. Different types of structured settlement payments can be customized and combined to meet your needs on a stand-alone basis, or in conjunction with other financial products. Diversify your structured settlement, if you wish, by funding with more than one annuity issuer, with treasury funded structured settlements, index linked structured settlement payments and market based structured .
  • Structured Attorney Fees for Tax Deferral for Contingency Fees
    Structured attorney fees is a financial strategy that offers a unique way to defer taxes for lawyers and law firms. Lawyers CAN structure their legal fees even if the plaintiff doesn't structure their settlement. There are multiple ways to structure your attorney fees, such as the an index linked structured settlement where payments are adjusted based on upside changes in the S&P 500 with no downside and a cap of 5%. Trial Lawyers may also use a special deferred pay/deferred compensation arrangement, if market based returns returns are desired with no cap. Plan NOW for year end! Put structured attorney fee expert John Darer® on your settlement planning team.
  • Structured Settlement Annuity Company Customer Service Phone Numbers
    Receiving structured settlement payments from your own structured settlement or inherited structured settlement? You'll like this huge time saver. Click the title for a link to a comprehensive list of customer service telephone numbers that includes both current AND former structured settlement annuity issuers and reinsurers. If you have simple bank or beneficiary changes, or if the insurance company that issued the structured annuity has merged, sold or spun off its block of structured annuity business (e.g. Aviva, Allstate, Transamerica, AEGON, GE Capital, Liberty, CNA, Confederation Life) or changed its name and you're trying to track them down, here you go! The list is regularly updated. Last updated September 14, 2023
  • Structured Settlement Quote Lock-Ins | What You Need To Know
    What does a Structured Settlement Lock-In Mean? How do plaintiffs, defendants and insurers benefit from a structured settlement quote lock in when finalizing a settlement? How does the defendant/insurer/court benefit from using a structured settlement lock-in? Where to be careful when using structured settlement lock ins.
  • What Are Structured Settlement Annuities?
    Structured settlement annuities are annuities that can provide one or more customized annuity payment streams in a single contract. Read about structured settlement annuities here.
  • History of Structured Settlements
    Tracing the roots of structured settlements history from 1918, when Congress exempted damages for personal injury or sickness from income tax, to the establishment of structured settlements as a core personal injury settlement planning tool to the present day.
  • What Are Market Based Structured Settlements?
    Market based structured settlements are an alternative or supplementary structured settlement solution for the plaintiff, attorney or law firm that: 1. Can afford to take some market risk 2. Have discretionary settlement dollars. Claimants and attorneys alike may find that market-based structured settlements provide the opportunity to receive tax-free income, or tax-deferred income, while enjoying growth potential.
  • iStructure |Uncapped Fixed Index Structured Settlement Annuity
    iStructure is an innovative game changing fixed index structured settlement annuity for plaintiffs or attorneys. with an intermediate to long term horizon

Qualified Settlement Funds

  • What is a Qualified Settlement Fund?
    Qualified Settlement Funds | What You Need to Know
  • Firmwide Qualified Settlement Funds Debunked
    Firmwide qualified settlement funds have been heavily promoted to trial lawyers, but have been debunked in a detailed analysis in a July 2022 legal opinion a tax partner at the law firm of Faegre Drinker Biddle & Reath, LLP. Trial lawyers and firms who have established Firmwide QSFs or coinsidering establishing a Firmwide QSF should read the analysis as part of their evaluation.

Contact Structured Settlement Expert John Darer®

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  • STRUCTURED SETTLEMENTS 4REAL® Blog Is a Popular Source of Structured Settlement News and Information, John Darer Reviews, Settlement Planning News and Financial Solutions for over 18 years,
    with a stable readership that seeks credible structured settlement information, John Darer Reviews, commentary and/or opinion about topical issues related to settlement planning, targeted to lawyers, injured persons and their family members, guardians, survivors, judges, magistrates, special masters, mediators, administrators, trust companies, insurance company executives and adjusters, financial advisers, settlement professionals, financial professionals, insurance regulators, government leaders, federal and state law enforcement, buyers and sellers of structured settlement payment rights, the news media and other interested parties. 4structures.com LLC established this structured settlement blog in 2005. John Darer ®, CLU ChFC MSSC CeFT® RSP CLTC, President of 4structures.com, located in Stamford, CT 06902. John Darer is an experienced New York City area structured settlement expert, structured settlement broker, Certified Financial Transitionist, and Registered Settlement Planner. He holds insurance licenses in 45 states, has 40 years financial services experience and more than 29 years in the structured settlements and settlement planning space. In his capacity as a investigative journalist and commentator, and professionally, John Darer passionately believes that shining the light on a business practice is both healthy and newsworthy. It is in the best interest of injury victims, their families and their legal advisers, that the settlement planning discussion involve those that are properly trained in the topic, properly informed on the topic and, with respect to structured settlements, properly licensed and/or appointed. It has significant instructional and deterrent value to other practitioners and firms as well as those who may be caught in the cross hairs. WHAT YOU GET here is the straight stuff with a touch of irreverence and humor. We hope you enjoy and find the content to be helpful. Subscribe to the structured settlement blog feed, or a specific category feed through your blog reader, or through the Subscribe button at the top left of this page. Followers of JDDarer™ on Twitter may also receive select content. If you would like to speak with John he can be reached at (888)325-8640 Thank you for reading! Last updated December 4, 2023

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  • "...Thanks to Mr. Darer's blog and personal pointers I was able to obtain a fair price for the sale of client structured settlement. Therefore, if one has no choice, but to sell their settlement educate yourself first before selling start by reading John's blog" Mr P. 11/17/2012
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  • John—this (video published 11/2010) is a well done piece. I like the way you always stick to the facts-AM
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  • Thank you so very much for discussing my concerns about Symetra, my annuity company. I am amazed that PI attorneys as well as a settlement broker in San Diego, could not answer the simplest questions I had regarding the Safeco/Symetra issue. Your blog/web site is most interesting and informative, and I am grateful you have take on the "watchdog" role! Thank you so much again (3/25/10)
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  • I heard a radio ad for the Peachtree Settlement Fund as I was driving into work this morning. (San Francisco Bay area.) I decided to check it out on the Internet and came upon your blog. Thank you very much. I do not have a “structured” settlement,
  • "All the others that I had emailed & have seen on the net were "cash now types" & have no concern of me & just are looking for my $$$. When I came across your site & blog I realized that u are an upstanding guy & are not like others. That's why I emailed"
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Structured Settlement Best Practices Corner

  • New York Insurance Advertising law requires the full name of the Insurer to be listed along with the city and state of the principal office. Stating that you represent these fine companies using Insurance company logos without the preceding information are also illegal
  • When it comes to settlement documents it is the ultimate responsibility of the lawyers or claims adjusters who receive input concerning the structured settlement aspects of the documents to actually read the entire document, exercise independent thought and advise their clients properly
  • Be aware that financial advisors use of testimonials is prohibited or restricted
  • Most states require that Testimonials represent the CURRENT opinion of the person who made the testimonial. Be prepared to back it up.
  • Number of States That Prohibit Payment of QSF expenses by licensed agents and brokers
    5 Survey not yet complete.

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Why Take a Structured Settlement?

  • A structured settlement offers guaranteed financial security to personal injury victims, wrongful death survivors and their families. A structured settlement involves a customized stream of payments, provides long-term stable tax-free income, for a period of years or a lifetime. Unlike other income annuities. a structured settlement annuity can have multiple payment streams to address multiple needs in a single contract.

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