by John Darer® CLU ChFC CeFT MSSC RSP CLTC
How a Settlement Comes About
When the lawsuit is settled, it is a compromise and there is a negotiated agreement.between the parties The agreement may have been reached after a day at
mediation, at a settlement conference in the judge's chambers, at a meeting in a lawyer's office, or over the phone.
How a Structured Settlement Comes About
As part of the compromise, there is a negotiated agreement that some portion of the settlement is paid in the future, with the future beginning as soon as a one month and depending on the terms of settlement, may be payable for a lifetime. There are different types of structured settlement payments that can be customized and then used alone or in combination with other types of payments in one settlement plan. The specific terms of the future payments must be included in the settlement agreement, the legal document which releases the defendant and its insurer from liability. the future payments are said to be part of the consideration for the settlement of the claim or lawsuit.
So where does the money go when the structured settlement is set up?
The structured settlement payments are generally funded with specialized structured settlement annuities. Structured settlement annuities are issued by some of the largest, regulated life insurance companies in the United States. Five such companies have been in business since the 1800s! Visit the Structured Settlement Annuity Company Museum, where you will see a 1937 New York Life Insurance Company advertisement that it has made it 'through every panic since 1845!". Now New York Life is 171 years young. One or more annuity issuers may be used for competitive pricing and/or for diversification.
As part of terms of the structured settlement most settlement agreements provide that the obligation to pay the future payments can be assigned to a qualified assignment company. This is because defendants and insurers generally have no interest in keeping an open ended obligation. From the plaintiff perspective, in some cases the plaintiff does not want anything more to do with the defendant and in his/her mind because the insurer is defending or paying the cost of the defense, the insurer as well.
With few exceptions, qualified assignment companies are generally special purpose companies that do little else than taking assignments of periodic payment obligations from defendants and insurers. Qualified Assignment companies receive amount being structured and pay it to the annuity issuer after deducting a modest $0 to $750 assignment fee (varies by company). So if the cost of the structure is $500,000 and the annuity issued by Metropolitan Life, the assignment fee of $750 is deducted and the balance of goes to the annuity issuer. Once all the annuity issue requirements are in and determined to be in good order, the annuity issuer issues the annuity.
Is a Structured Settlement Annuity like a bank account?
- This is a more common question or source of confusion than one might think, particularly from young adults who learn they are scheduled to receive payments for the first time.
- A structured settlement annuity is a special type of insurance contract that is used to fund the payment of damages agreed to as part of a settlement or a periodic payment judgment
- An insurance license is required to sell and place an annuity. While you may see someone at a desk in your local bank attempting to cross-sell insurance to the bank's customers, that individual would have to possess an active insurance license in the state of solicitation.
- While you will receive monthly statements or online statements from your bank you will not receive such statements since the interest is implicit in the contract. you have a printed schedule that sets forth when you will receive the payments.