by Structured Settlement Watchdog
Here are three misleading terms that one encounters when solicited by structured settlement factoring companies and intermediaries of sellers of structured settlement payment rights, including one or two glib settlement planners.
1. Selling a Settlement
Why is "selling a settlement" misleading?
- A settlement is the end of a civil action brought about by agreement between the parties. [Source: Black's Law Dictionary Free Online Legal Dictionary 2nd Ed. ]
- A structured settlement is a negotiated stream of periodic payments, paid as damages in exchange for a release of liability, that is customized to the needs of a particular plaintiff or plaintiffs.
- A settlement agreement sets forth the terms of settlement including, but not limited to the consideration for the plaintiff's release of liability. Part of that consideration could include a structured settlement and/or cash, disposition of liens, indemnification, confidentiality and so on.
- A structured settlement factoring transaction is a means to raise liquidity for someone who is receiving structured settlement payments, where there is no other viable means, via the transfer of structured settlement payment rights. A qualified court order is necessary for the buyer of structured settlement payment rights to avoid a 40% excise tax on the factoring discount.
2. Secondary Market Annuity
The use of the term secondary market annuity by certain merchants to solicit an investor to buy structured settlement payment rights is self indulgent twaddle. The National Association of Insurance Commissioners in its Statutory Issue Paper 160 (finalized April 2019) clearly states that acquired structured settlement payment rights are not an annuity or an insurance product. On January 11, 2020 one New York settlement planner with an active insurance license, even crowed that "these assets are life insurance products, guaranteed by the issuer, and in most states by the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA). When you invest in structured settlement payment rights you are simply not buying an insurance product.
3. "Super Bonds"
A deceptive sale pitch to rope in investors. A bond "is a debt security, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time. When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation. In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it "matures," or comes due after a set period of time". [Source: U.S. Securities and Exchange Commission]
There is no loan in a structured settlement factoring transaction. The rights to periodic payments are transferred.
You are essentially buying a derivative of a regulated product, the derivative instrument being not regulated by anyone. Investors can lose, and some have lost hundreds of thousands. May also be described as a factored receivable.
Last updated September 4, 2023