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It's a Jumble Out There | Fixed Income Annuity, Fixed Indexed Annuity or Index Linked Annuity?

by Structured Settlement Watchdog

It's a Jumble Out There

I was surprised to find this fixed income annuity Jumbleaya on the website of a group of esteemed industry colleagues:

Have a seat folks!

• "A fixed income annuity is an annuity with some guarantee against loss while also allowing for market rates of return inside the annuity.
• The upside in these annuities is usually capped at some amount, but the annuities offer downside protection (i.e., if the markets go down, the annuity payments remain the same).
• So, a fixed annuity often offers the potential of better rates of return than the structured settlement annuity fixed rates are offering".

Note: I've bullet pointed to isolate the 3 statements for ease of appreciating the contradiction.

What does Fixed mean?

Fixed Definition & Meaning - Merriam-Webster    "not subject to change or fluctuation (e.g. a fixed income) "

What is an Income Annuity?

Income annuities are an insurance product issued by life insurance companies that convert a premium to income starting immediately ( Immediate Annuity or " SPIA" ), or in the future  (Deferred Income Annuity or "DIA")

What Is a Fixed Annuity? Uses in Investing, Pros, and Cons (investopedia.com)

What Are Index Linked Structured Settlement Annuities?

An indexed linked structured settlement annuity is a tax-advantaged type of structured settlement option that provides protection for when the market goes down, combined with an opportunity for growth that varies with the market index the annuity is tied to. It gives you more income growth potential than a fixed income structured settlement annuity. or a fixed income structured settlement income annuity with a fixed percentage COLA, along with less risk and less potential return than a variable annuity.

Three life insurance companies that issue structured settlement annuities have index linked structured settlement annuity options:

1. Pacific Life Insurance Company and Pacific Life & Annuity Company introduced their Index Linked Annuity Payment Adjustment Rider (ILAPA), in 2014  ILAPA (pacificlife.com)
2. Independent Life Insurance Company introduced iStructure in 2021 iStructure Annuity | Industry's 1st Uncapped Index-Linked Structured Settlement Annuity ; and 
3. The Prudential Insurance Company of America introduced Income Advantage Prudential Income Advantage | Structured Settlement Index Linked (4structures.com)   Guaranteed Income Secure Growth Potential (scene7.com). Prudential refers to its product as "index linked" in consumer facing communication.

Currently, no life insurance companies offer variable structured settlement annuities. 

 

 

Do Structured Settlement Payments Need to Be Equal Payments?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Do Structured Settlement Payments Need to Be Equal Payments?

1. Qualified Structured Settlement Payments

• Generally qualified structured settlement payments can be equal or unequal
• There are many different types of structured settlement payments to choose from.  See Types of Structured Settlement Payments | Your Structured Settlement Payment Options (4structures.com)
• You can combine different types of cash flows to suit your needs, in a single contract if you wish.

2. Non Qualified Structured Settlement Payments

• IRC Section 72(u)(1)  "The Non Natural Person Rule"
• The so called "Non Natural Person Rule" provides that "if an annuity contract is held by a person who is not a natural person, then such contract shall not be treated as an annuity contract for purposes of subtitle A (other than subchapter L) and the income on the contract for any taxable year of the policyholder shall be treated as ordinary income received or accrued by the owner during such taxable year
• As an exception to the " non-natural person rule, payments must be substantially equal within the meaning of IRC 72(u)(4).

IRC 72(u)(4) Definition of Immediate Annuity

For purposes of this subsection, the term “immediate annuity” means an annuity—

• 72(u)(4)(A) 

  Which is purchased with a single premium or annuity consideration,

• 72(u)(4)(B) 

  The annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity, and

• 72(u)(4)(C) 

  Which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period.

 

In the structured settlement space, this applies where a domestic (US) non qualified assignment is funded with an annuity, where the annuity is owned by a non-natural person.  

Examples

AGL Assignments, LLC is the non qualified assignment company for Corebridge subsidiaries  American General Life Insurance Company and United States Life Insurance Company in the City of New York  (NY cases) and is registered in Delaware.

MetLife Assignment Company, Inc. is an assignment company, registered in Delaware, that handles both qualified and non qualified assignments where Metropolitan Tower Life annuity is the issuer of an annuity owned by MetLife Assignment Company, Inc.

Are There Any Workarounds to IRC 72(u)?

Non Qualified Assignments Where Funding Asset is Not an Annuity

AGL Assignments, LLC is the non qualified assignment company for Corebridge subsidiaries American General Life Insurance Company and United States Life Insurance Company in the City of New York  (NY cases). A non qualified structured settlement solution is available in all states except Pennsylvania, using a Funding Agreement instead of an annuity. The Funding Agreement is not an annuity.

Reinsurance Structured Settlements

Periodic Payment Reinsurance | Reinsurance Structured Settlements 2023 (4structures.com)

Use of Non-Domestic Assignment Companies

• Structured Assignments, SCC Barbados
• Havelet Assignment Company -Barbados
• Dominion Assignment (Switzerland) for Independent Life's iStructure Dominion Assignment Company - Independent Life
• Kenmare Assignments  (Ireland)

Last updated November 13, 2023

 

 

 

Lump Sum Advice for Structured Settlement Annuity Holders

by John Darer CLU ChFC MSSC RSP CLTC

Are there any ethical considerations for a structured settlement co-broker placing a structured settlement for the defense using the information about the plaintiff's structure to solicit them in the future for other insurance, advisory or investment products and services by them or third parties?

Cross Selling is Not Unusual Concept But Where Does It Cross the Line?

Cross selling is not an unusual concept.  If you go into a bank to open a savings account you might be interested in a checking account or a time deposit account or a mortgage. On a future visit to the bank the in house insurance person may try to solicit you for life insurance. But all of those sales are to customers of the bank.

Does the plaintiff, or plaintiff lawyer become a client of the defense broker simply by virtue of a private agreement between two brokers to split commissions that the plaintiff or plaintiff attorney is not a party to?  Does the buyer of a property become a client of the listing broker by virtue of the entitlement to a percentage of the real estate commission earned where the buyer was introduced by the buyer's broker?

So What is Going On?

• I've learned that an entity involved on the primary side of the structured settlement industry is sending letters to annuitants entitled "IMPORTANT NOTIFICATION FOR YOUR LUMP SUM PAYMENT".
• The letter is sent on the letterhead of a different but related entity to the defense broker, a name that would be not likely be known to the annuitant, but possibly recognizable to participants in the primary structured settlement market.
  
• The letter is sent by regular mail
• The letter, contains specifics about the former plaintiff's structured settlement, including the date the annuity was placed, the name of the life insurance company issuing the underlying structured annuity, and the amount and date of a particular lump sum payment along with a financial inducement (see below).
• The letter is clearly a solicitation for insurance (i.e. lifetime annuity). advisory and investment products and services to "show you options to finalize your lump-sum payment" and to "identify retirement strategies that can provide guaranteed lifetime income..." and offers a complimentary service with a purported value of $1,500.

What Do Downstream Business Agreements With Insurers Say?

I am aware of at least one casualty insurer where this might present a problem with a vendor agreement. There may be a problem with the vendors of the defense broker and how the data is used.

Is this Simply Opportunism or Is There An Ethical Question to Be Answered?

One Way to Flesh Things Out

The brokers associated with the entity often submit split agreements that attempt to do a commission grab for any type of product sold to the plaintiff, not just the structured settlement annuity, whether the posturing broker had any involvement in bringing about that business or not.  Those that have signed such agreements may wish to review such agreements to see if there is a time limit and if not, explore whether or not any fees are owed to them for other products sold as a result of the type of solicitation described. That a different entity is used for such solicitations muddies up the waters a bit.

Plaintiff brokers entering into co-broker agreements with defense brokers who have concerns about this issue may wish to insert language into such co-broker agreements to address the issue of using information gleaned from the case in solicitation of their clients.

Do You Need to Finalize a Lump Sum Payment From a Structured Settlement?

If you have a lump sum coming due from your structured settlement and you have not changed your address or bank account then the check or deposit should arrive on time.  It may be helpful to contact the structured settlement annuity issuer or to contact your broker or settlement adviser or financial planner to help verify that they have your current address and contact information. Most settlement agreements place the burden on the annuitant to notify the annuity issuer of address or bank account changes. It is also a good opportunity to make sure your beneficiary designation is up to date if you have more payments arriving in the future  If you are just turning 18 you will be able to name a beneficiary for the first time. Naming a beneficiary means that your heirs avoid potentially significant probate delays.  If you want to contact the annuity issuer directly here is a helpful list of customer service phone numbers for life insurance companies that currently issue structured settlement annuities, as well as companies that formerly issued structured settlement annuities.

If you want to explore other options for the lump sum consider working with a Sudden Money advisor, who has experience dealing with financial transitions.

 

 

 

 

Annuity Payout Rate | Is Annuity Payout Rate an Interest Rate?

by John Darer® CLU ChFC MSSC RSP CLTC

An annuity payout rate is not an interest rate. An annuity payout rate is the percentage of the annuity purchase price that is paid out each year and includes both interest and return of principal. 

The term "annuity payout rate" is used in marketing as a way to make income annuities more attractive. 

If seeking to purchase an income annuity or a salesperson is trying to get you switch from a CD or other income producing investment, caution should be taken when considering the alternatives.

Internal Rate of Return (IRR) is probably a better measure of comparison than annuity payout rate.

The annuity poyout rate is not the interest rate no matter which way you stack it

 Last updated Decmber 17, 2023

 

Personal Settlement Annuity from Pacific Life | Post Settlement Annuity | Ah-Oh Annuity

by John Darer CLU ChFC CeFT MSSC RSP CLTC

The Personal Settlement Annuity is an option for settlement funds where constructive receipt has already occurred . With a Personal Settlement Annuity,  If constructive receipt has occurred  "oops" doesn't mean the "poops".  

Ah Oh! You Already Signed A Release the Other Day

There is a solution.  Not an apples to apples solution mind you, but a solution that can provide predictable, safe, secure and stable core income using structured settlement annuity pricing , which is often more favorable than traditional single premium immediate annuities (SPIA).  

A  Personal Settlement Annuity is only available to settling plaintiffs within a very short time after a settlement has concluded

The premium used to fund the personal settlement annuity must come from a settlement that was for payment of damages under IRC 104  (personal physical injury).

• Unlike payments from a structured settlement for damages, a portion of the payments from a personal settlement annuity is taxable.  
• Unlike a structured settlement annuity,  a personal settlement annuity must comply with  IRC 72(u)  [ for example, in order to avoid a 10% penalty, payments must begin within 13 months, begin at or after age 59.5, ,or be spread out over the life expectancy of the annuitant]
• Pacific Life  is the issuer of the Personal Settlement Annuity and is rated A+ by A.M. Best

Whether or not a Personal Settlement Annuity makes sense will depend on an individual's needs. Other forms of non qualified income annuities may also make sense and should be explored such as deferred income annuities (DIA) and/or indexed annuities.  These types of annuities may be used, among other solutions in combination, to help a settling plaintiff achieve his or her financial goals.

 

Income Annuities Are Supported by Jane Bryant Quinn

by John Darer CLU ChFC CSSC RSP CLTC

Nationally known personal finance expert Jane Bryant Quinn strongly supports income annuities as a protection against the risk of outliving one's savings , in an interview for Annuity News published October 22, 2014. 

Structured settlement annuities are a form of annuity that can include elements of both single premium immediate annuities (SPIA) and deferred income annuities (DIA).

Click here for types of structured settlement payments

Annuity Industry "B-Team" Plugs HIgh Yields | "Play At Your Own Risk"

by John Darer® CLU ChFC MSSC RSP CLTC

A retirement annuity company is offering 3.05% for 5 years, or so says the email solicitation that I received as a Connecticut resident where the product is not even licensed to be sold. 

More Food for thought

A. M. Best rates the company B+

Weiss rates the company D+

Here's what Weiss might be looking at

Bonds In or Near Default                                              21.2%  (Bonds are 55% of portfolio)
Problem Mortgages                                                          5.9%
Real Estate Acquired by Foreclosure                             23.9%
Total Non-Performing Assets/Surplus & AVR                    51.0%
As a Percent of Invested Assets                                      5.5%

Errors and Omissions insurance policies often have policy restrictions or exclusions if the insurance company is less

In the words of Planet Patrol "Play At Your Own Risk".  Not a place for the "Stray Cash Strut".

 

What is a Lifetime Annuity? John Darer Reviews Lifetime Annuities in Structured Settlements

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

A lifetime annuity turns part of your settlement recovery, or savings, into stable guaranteed income you can’t  outlive. 

For Lifetime Annuity quotes call 888-325-8640

With a structured settlement, stable guaranteed income can begin right away (typically at least one month from funding), or it can be deferred or you can have more than payment stream and do both.

A lifetime annuity (also known as a Life Annuity)

• Turns part of your settlement recovery, or savings,  into guaranteed income you can’t outlive. The mortality risk is shifted to a life insurance company whose business it is to assess mortality and who possesses the economy of scale to spread that risk out over all of its policyholders and annuitants.
• Can lock in an immediate or deferred income stream for life  (immediate annuity or deferred income annuity)
  
• Means you can receive stable ,secure, guaranteed* payments regardless of market conditions
• Payments may cease upon the death of the measuring life, OR two measuring lives  (joint life annuity), OR you can include guarantees that provide an alternative way to address the possibility that the measuring life (lives) will die prematurely.

Taxation of Lifetime income Annuities

Generally, with respect to income taxes,

• Where a structured settlement annuity is paid for a lifetime, the payments are free of income taxes, if the payments represent damages on account of personal physical injury or physical sickness or are payments from a workers compensation claim. [for more information see Internal Revenue Code Sections 104(a)(1) and 104(a)(2)]
• If the lifetime annuity is purchased by you from your after-tax savings ("non qualified" annuity ), some of the income is not subject to tax. To figure out how much income is excluded you must first calculate the exclusion ratio. The exclusion ratio is your net investment in the annuity (amount you paid for the annuity) divided by your expected return from the plan. The expected return is the total amount of annuity payments that you'll receive. Generally, an annuity provides for lifetime payments, so the total amount of annuity payments depends on your life expectancy at the annuity starting date. For example, if your net investment is $100,000 and the expected return through your life expectancy is $250,000 then the exclusion ratio is .40 (100,000 divided by 250,000). [ for more information see 26 CFR 1.72-4 - Exclusion ratio]
• If a lifetime income annuity is purchased as part of the settlement of litigation where the damages are taxable (for example an employment related settlement), or as a distribution from a qualified pension plan, then each annuity payment is fully taxable. There is no exclusion ratio.
  

 * subject to the financial strength and claims paying ability of the annuity issuer.

Last updated April 2, 2024

SOA What? Almost 50% between 45-70 Ill-Prepared For Lifetime Income and Healthcare Needs

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Almost 50% of Americans between the ages 45-70 have no financial plans in place to protect themselves against outliving their assets and the rising cost of healthcare should they live longer than they expected, according to a new survey released today by the Society of Actuaries (SOA). Additional findings show more than one-third are worried about running out of money during retirement, but only 20 percent plan to purchase an annuity or other form of guaranteed lifetime income to protect their assets.

Plaintiffs, claimants and attorneys should not fail to consider a balanced approach and plan for longevity risk as well as other exposures such as disability, long term care, the loss of income and physical support of a spouse due to death or diability. Those who avoid even considering structured settlements, annuities, life insurance, disability insurance, healthcare financing methods such as Healthcare Savings Accounts (HSA), or long term care insurance could be left holding the bag.  For example,   if you are parents of a child with a profound disability, as part of your overall financial planning, be sure to account for your own needs with your own resources, in addition to considering the needs of the child.

We can help. Call us toll-free 888-325-8640.

 

If An Annuity Could Talk | Cuckoo For Cocoa Puffs, "Gaga" Over Annuity

by John Darer CLU ChFC CSSC RSP

Granted an annuity is safe and boring and gets its share of disrespect in the press, but if an annuity could talk might it hum something like this, to the tune of the chorus from Paparazzi by Lady Gaga?

Promise You'll Be Fine

Your Structure Won't Stop

 Until You're "Out Of Time"

 

I've Got Your Future

I'll Keep Paying You, Until You Love Me

"Annu- Annuity"

 

Baby You'll Be Safe

Periodic Payments "Shake and Bake"

 

I've Got Your Future

I'll Keep Paying You, Until You Love Me

"Annu- Annuity"

It's not so far fetched really. When you think about it, a structured settlement annuity has more ways you can design structured settlement payments than cuts of meat in a Lady Gaga dress. It's "the ultimate in predictable income".

Sing it "Gags"!