by John Darer CLU ChFC MSSC CeFT RSP CLTC
"You have a structured settlement and need cash now!" says Chegg, an American education technology company based in Santa Clara, California. "Suppose you call J.G. Wentworth to sell your structured settlement, which is an annuity paying you $80,000 per year for the next 22 years. If the discount rate is 5%, what do you expect the annuity is worth if you sell it today?" asks Chegg.
Chegg gives you 4 choices, neither of which is the correct answer in the real world
A. $1,053,040
B. $1,025,680
C. $1,760,000
D. $3,080,400.
Why is the Chegg structured settlement question a trick question?
- A structured settlement is not an annuity.
- A structured settlement is a form of settlement in which some part of the consideration for the release of liability is comprised of future periodic payments.
- A structured settlement may be funded with an annuity, which is a contract issued by a life insurance company.
- An annuity is a " qualified funding asset", which could neither be owned by any of the tens of thousands of students that Chegg poses the question to, nor any plaintiff who is receiving such structured settlement payments in the real world.
- Neither J.G Wentworth, nor any company like J.G. Wentworth could ever buy a structured settlement annuity in the real world, unless it were a defendant self funding a settlement obligation to a plaintiff.
- Price elasticity comes into play as well as does the cost of money, which varies vendor to vendor.
- The question asks for worth, not present value. Worth may hinge on the amount of market competition encountered by J.G. Wentworth, because a prospective seller has shopped around. A Consumer Affairs review of JG Wentworth retrieved on September 21, 2021 claims their fees range from 9-15%
- Therefore the purported "expert answer" offered by Chegg, is not correct.
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Chegg's trick question on structured settlements. Their " expert" answer" is wrong on many levels
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