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May 08, 2014

Index Linked Structured Settlement Payments v Equity Indexed Annuity | The Difference

by John Darer CLU ChFC MSSC CeFT RSP CLTC

There is a critical distinction between an index-linked structured settlement and the equity-indexed annuities being sold for retirement.

What is an equity indexed annuity?

An equity-indexed annuity is an accumulation vehicle. An equity indexed annuity is a form of deferred annuity that is different from other fixed annuities because of the way it credits interest to your annuity's value. Most fixed annuities only credit interest calculated at a rate set in the contract. Equity-indexed annuities credit interest using a formula based on changes in the index to which the annuity is linked. The formula decides how the additional interest, if any, is calculated and credited. How much additional interest you get and when.

Equity Indexed Annuities are available in many different "shapes and flavors". The complexity of choices caused the Financial Services Regulatory Authority (FINRA) to issue an alert on equity-index-annuities. FINRA states in part  [ full alert can be found by clicking on the alert link in the preceding sentence] "Although one insurance company at one time included the word "simple" in the name of its product, EIAs are anything but easy to understand. One of the most confusing features of an EIA is the method used to calculate the gain in the index to which the annuity is linked. To make matters worse, there is not one, but several different indexing methods. Because of the variety and complexity of the methods used to credit interest, investors will find it difficult to compare one EIA to another".

What is an indexed-linked structured settlement?

An index-linked structured settlement provides periodic payments that are adjusted annually based on changes in the S&P 500 between two annual measuring points. While there are many companies offering equity -indexed annuities, at the time of posting, Pacific LIfe is the only annuity issuer offering an index-linked structured settlement payment option,through its apppointed structured settlement agents, of which I am one. The participation in changes in the S&P 500 is capped at 5% and payments do not adjust downwards if there are negative changes in the S&P 500. Pacific Life underwrites through two annuity issuers, Pacific Life Insurance Company (in all states but New York) and Pacific Life and Annuity, in New York.

Download Pacific Life+PLA+Indexed+Structured+Settlement+Client+Brochure

Critical Differences between Index-Linked Structured Settlements ( ILSS) and Equity Indexed Annuities  (EIA)

  • Indexing of Payments ( ILSS) vs Indexing of Account Value (EIA)
  • Formula  for adjusting payments vs formula for crediting interest (EIA)
  • Indexing applies only after payments begin  (ILSS).
  • Annuity Rider ( ILSS) vs an Annuity Policy (EIA)
  • S&P 500 is the only index measured (ILSS) vs possbility of other choices depending on annuity issuer(EIA)
  • Offered by one life insurance company vs many life insurance companies  (ILSS)
  • No withdrawals allowed  (ILSS),because you are agreeing to an income stream  vs. withdrawals allowed(EIA- subject to surrender fees per contract)
  • If used to pay damages on account of physical injury, physical sickness, wrongful death, or workers compensation  [subect to workers comp board approval] and satisfies the requirements of the applicable sub-sections of IRC 104, payments are income-tax free  (ILSS)  vs tax deferred (EIA, or ILSS-for structured attorney fees)

 For more information on indexed linked structured settlement payments contact John Darer at 203-325-8640

Disclaimer: The information presented in this post should not be used in any actual transaction without the advice and guidance of a professional tax and financial adviser who is familiar with all the relevant facts. Although the information contained here is presented in good faith and believed to be correct, it is general in nature and is not intended as tax advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals' specific circumstances or needs and may require consideration of other matters..

Posted at 10:57 AM in Albany New York Structured Settlements, Annuity FAQ, Bowling Green Kentucky Structured Settlements, Bridgeport Structured Settlements, Bronx New York Structured Settlements, Brooklyn New York Structured Settlements, Connecticut Settlement Planning, Detroit Michigan Structured Settlements, Hartford CT 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 Personal Injury, New York Settlement Planning, New York Structured Settlements, Newburgh Structured Settlements, NJ Structured Settlements, North Carolina Structured Settlements, NYC Structured Settlements, Pacific Life Structured Settlements, Palm Beach Structured Settlements, Philadelphia PA Structured Settlements, Rhode Island Structured Settlements, Sacramento Structured Settlements, San Francisco Structured Settlements, Santa Monica Structured Settlements, Sarasota Structured Settlements, Settlements in Queens County New York, South Carolina Structured Settlements, St. Louis Structured Settlements, Structured Settlements in Florida, Structured Settlements in Fresno County, Structured Settlements in Georgia, Structured Settlements in Illinois, Structured Settlements in Ithaca New York area, Structured Settlements in Kentucky, Structured Settlements in Louisiana, Structured Settlements in Maryland, Structured Settlements in Michigan, Structured Settlements in Nassau County, NY, Syracuse Structured Settlements, TX structured settlements, VA Structured Settlements, Washington Structured Settlements, White Plains Structured Settlements, WV 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 for 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 January 23, 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.

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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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