In this week's premier secondary structured settlement market case just over $41,000 can purchase payment rights to a stream of increasing income payments:
- Backed by an annuity from New York Life Insurance Company, rated A++ AM Best, AAA S&P, AAA Fitch, Aaa Moodys
- Payments start November 1, 2029 with an initial monthly payment of $1,107.38, increase at 3% compounded annually and continue for 20 years (240 monthly payments). The total payout is $357,068. The guaranteed effective yield is 7.75%
At first blush one might think, "why would I or they want to wait for that long?. But recognize the possibility that the plaintiff/you/your client/family member, has long term financial needs and when we "scope out" those needs, this is just one of the building blocks in crafting the overall financial solution.
- For example, given the 19 year deferred start date and a total duration from now until the final payment of 39 years, such purchase may be suitable for young claimants. For example an adult 18-35 year old claimant could allocate a portion of the cash proceeds of settlement to such an opportunity. If we know that income is needed why allocate more resources than is necessary?
- Another example is where a 25-38 year old annuitant has a $200,000 lump sum coming due, does not need it all now, and is comfortable setting aside aside more for the future without the volatility of the stock Market. We're only talking about $41,000 or so here in this example to secure a segment of long term income.
- An attorney with extra cash in his/her pension plan and "time to kill" might find this attractive as a way to secure a portion of his/her long term financial security at attractive rates. With defined contribution limits at $49,000 for 2010 this might be a nice fit for the right person.
- For an injured party to purchase the same cash flow, for the same benefit segment, using current New York Life market rates, the cost would be approximately $87,194, including assignment fee. That's more than twice the amount of money in today's dollars to produce the same amount of income!
- The yield on the primary market structure is 4.91%. Comparing that to the secondary market opportunity, even in as a high as a 35% tax bracket the net yield is higher in what is described above.
Before readers start lining up at the door, one also has to recognize that the secondary market for structured settlement payment rights, lottery payments and such is a bit like a used car lot. There's a limited inventory. The purchase of structured settlement payment rights through the secondary market requires Court approval prior to the rights being transferred in exchange for the lump sum buyer's payment.