by Structured Settlement Watchdog
A structured settlement annuitant whose structure was only set up in late 2013 seeks $2,000 today to deal with a non-critical personal medical issue that I have confirmed can be financed.
Let's do the math:
Needs $2,000, BUT the transaction costs are likely to be at least
- $1,500 legal fee assuming the purchaser is large enough to get a volume discount, with court filing fee
- $500 annuity issuer fee
- Plus profit margin for the settlement purchaser which varies. They don't work for free, especially those ones that have to support their advertising.
The costs exceed the amount that the structured settlement annuitant needs so if he proceeds with the NASP member he will have to sell much more than he needs to sell and will be giving up a stable income.
According to a brief survey we conducted of several settlement purchasers, if immediate payments were sold the effective discount rate would be WAY over the cost of financing from the non-critical medical treatment, which would clearly not be in the annuitant's best interest. If the back end payments were sold the effective discount rate could be in the 15% plus range, requiring the sale of almost 7 times more payments that the nominal amount of $2,000 that the annuitant needs.
This is a case where a little education and willingness of those on the primary side to help people explore their options. and a little williness on the secondary side of the market to stifle their opportunism, where clearly warranted. I've observed that some do, but many don't!
Without proper guidance about viable alternatives, the current system either deters people seeking to raise a nominal amount of cash or sets them up to sell much more than they need to, thereby starting them on a downward cycle.