by Structured Settlement Watchdog
Watching Annuity Straight Talk fumble its explanation of how "secondary market annuities" are created has added some levity to my morning. Maybe it will yours. First the formalities. Secondary market annuities are not annuities, they are structured settlement derivatives.
"Technically speaking they're not even annuities" - Personal Income Blog
A. The example story provided by Annuity Straight Talk
- John Smith hits Jane Doe in a car accident, and the case goes to court.
Was the Annuity Straight Talk example straight fom the Horse's Bow or the Stern? Yea for Bow, "Neigh" for Stern!
- John Smith loses in court, and Jane wins. Money is offered to Jane, either a lump sum, or a structured settlement making payments over her lifetime. Instead of taking the lump sum, Jane, who can’t go to work because of her injuries, elects a structured settlement.
- Jane’s court ordered settlement reads “Jane Doe shall receive $1000 per month for life, with 20 years guaranteed.”
Question: Why would there be a court ordered settlement if there is no minor and no death?
B. The annuity purchase
- Now Jane doesn’t want John or Progressive, his auto insurance company, to be paying her, and the court doesn’t want this either.
Comment: At this point I'm laughing so hard my morning drink is coming through my nose. See why in next comment.
- Progressive just wants to close the case and raise John’s premiums.
- To put closure on the case, Progressive purchases an annuity from a major life insurance carrier to pay Jane $1000 per month for life, with 20 years guaranteed. Let’s assume they purchase the annuity from MetLife.
Comment: Annuity Straight Talk has come to a bit of an impasse because, Jane "doesn't want John or Progressive, his auto insurance company to be paying her, and the court does not want this either." Furthermore , as anyone from Grosse Pointe Michigan who knows structured settlements will tell you, Progressive has not been known to pay Jane, Tom, Dick or Harry, even Jack and Jill, Jose Cuervo or Juan Valdes, without a release. No release, no pay Doe. The example simply runs out of "gas"
- Progressive Insurance is the owner, MetLife is the issuer, and Jane is the payee of this annuity contract. Jane can call up MetLife any time and they will tell her that she is entitled to $1000 a month for life, with 20 years guaranteed starting on the date the case was closed.
Comment: Assuming that Jane and the Court can overcome their aversion of Progressive paying Jane, It would be very unlikely that Progressive would be doing a "buy and hold". Given that it wants closure, any structured settlement involving Progressive, would involve a qualified assignment
- If MetLife goes out of business, and also the State Guarantee funds that guarantee Met and the other carriers operating in that state go out of business too, (Ummm Not very likely!) Jane can go back on Progressive and demand that they make good on the money owed to her under the court settlement.
Comment: Now if structured settlement derivatives were really annuities and the principal of AST holds an active insurance license there is no way he would be speaking about something that is unlawful, right? I point this out so that the regulators and state legislators can see how licensed insurance agents peddling structured settlement derivatives as annuities to investors (and presumed registered voters) with the scam label, routinely utilize the existence of statutory protections in their pitch.
- Now back to our story…. John and Jane can finally put this accident behind them. Progressive has a continuing liability to Jane, but they have shifted that onto Met Life, albeit for a pound of flesh. Met Life sticks it to Progressive and gets a big chunk of premium to invest, and adds Jane to their long list of happy customers.
Comment: If there is a qualified assignment Progressive has no continuing liability to Jane. Jane will be interested in being a secured creditor and thus a qualified assignment release and pledge is needed. I don't know about MetLIfe "sticking it to Progressive". Upon information and belief, Progressive has been a big consumer of structured settlements over the years.
- Now five years goes by, and Jane needs money for a new car. She can’t get a loan as she doesn’t work, so she decides to sell some of her payments for a lump sum.
- Met Life can not buy Jane’s contract out because it would be a conflict of interest. So instead, she enters into a contract with a factoring company- and you may have heard ads for companies like JG Wentworth on TV that specialize in this business- and sells $500 a month for 15 years.
- Jane accepts the factoring company’s offer at an 8% discount rate, and looks forward to receiving a little over $53,000 once the case is settled.
- Jane has just created a secondary market annuity contract available for you to purchase…
- All Guarantees referenced on this site are subject to the claims paying ability of the individual insurance carriers.
Comments:
- Jane has not created a secondary market annuity contract she has agreed to transfer the right to receive periodic payments as defined in IRC 5891.
- If Jane created what Annuity Straight Talk
- Annuitants should not automatically assume that the annuity issuer will not commute its contract. Always approach the annuity issuer for a quote, even if they don't advertise, and force the factoring company or investor to pay more than what the annuity issuer is offering if they want the business. Allstate has its Advanced Funding Exchange Notice and Berkshire Hathaway recently rolled out its Hardship Exchange Program
" Technically speaking they're not even annuities" - Personal Income Blog
Breakfast entertainment source: Secondary Marketannuity(dot)net
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