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Comparing Life Settlements vs Structured Settlement Factoring Transactions

by Structured Settlement Watchdog

John Darer Exposes "Secondary Market Annuity" Marketing Fraud

By examining the difference between a life settlement transaction and a structured settlement factoring transaction we can continue to home in on why the use of the term "secondary market annuities" to market factored structured settlement payment streams is a marketing fraud on investors.

What is a Life Settlement?

The sale of a life insurance policy is called a life settlement.  A life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value but less than its net death benefit. In a life settlement transaction, the policy’s owner transfers ownership of the policy to the buyer in exchange for an immediate cash payment and, in some instances, a reduced interest in the death benefit for the policy’s beneficiaries. The buyer of the policy pays all future premium payments and receives the death benefit upon the death of the insured (when the policy matures). A life settlement is different from a viatical settlement in that the individual insured on the policy has a longer life expectancy. In a viatical settlement, the life expectancy of the insured is 24 months or less.

Step 8 in the Life Settlement Process "The insurance carrier is notified of the change of policy ownership and beneficiary to the new owner, the provider."

[ Source: Life Insurance Settlement Association]

What is a Structured Settlement Factoring Transaction?

The term “ structured settlement factoring transaction "means a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration". [ Source:  IRC 5891(c)(3)(A)]

IRC 5891 (c)(3 (B) Exception Such term shall not include—
(i)the creation or perfection of a security interest in structured settlement payment rights under a blanket security agreement entered into with an insured depository institution in the absence of any action to redirect the structured settlement payments to such institution (or agent or successor thereof) or otherwise to enforce such blanket security interest as against the structured settlement payment rights, or
(ii) a subsequent transfer of structured settlement payment rights acquired in a structured settlement factoring transaction.

Fundamental differences between a life settlement and a structured settlement factoring transaction

1. Life settlement involves the sale of an actual policy. A structured settlement factoring transaction does not.
2. A structured settlement factoring transaction involves the transfer of structured settlement payment rights not the transfer of annuity ownership
3. A subsequent transfer of structured settlement payment rights is not a structured settlement factoring transaction or a transfer of annuity ownership since the annuity ownership was not transferred in the first place.

Licensing

Life settlements are typically under the purview of state life insurance departments. In Connecticut for example, life settlement is a line of authority under an insurance license. The state regulator has the power to fine, suspend or revoke the authority. By contrast regulation of authority to engage in structured settlement factoring transactions, solicit annuitants, solicit investors in factored structured settlement payments streams is the exception rather than the rule.

 

 

  

 

 

Long Term Care Life Settlement | Use Life Insurance to Pay for Long Term Care

by John Darer® CLU ChFC CSSC RSP CLTC

Did you know that you can use a life insurance policy of any kind to pay for any form of Senior Care you want. We look for every available long term care planning tool to help families

Converting life insurance policies into a tax-free Long Term Care Benefit Plan is an important option for families seeking funding sources to address immediate need for care.

I was cited in an April 2, 2015 Life Health Pro article about Life Settlements, concerning the use of life settlements to pay for long term care.

The Mathematics of Long Term Care Insurance (LTCi)

by John Darer® CLU ChFC MSSC CeFT® RSP CLTC

Last week I had the opportunity to see the movie "Still Alice" , a powerful movie which deals with the early Alzheimer's diagnosis of a 50 year old happily married woman with three grown children,  a renowned linguistics professor who starts to forget words. When she receives the devastating diagnosis, Alice and her family begin a journey that finds their bonds tested. The concurrent track of the movie touches aspects of the journey from her children's standpoint that is familiar. My father was diagnosed with Alzheimer's in 2004, at age 70 and he died 9 1/2 years later. Towards the later stage of the movie, Alice has a home attendant and there is an implication that she may enter an assisted living facility. Dad entered assisted living at age 77, in March 2011.

We had the foresight as a family to engage in a discussion about long term care, the result of which was to set up a long term insurance program for both of my parents.

At the time my Dad was 65 and my Mom 61.

The mathematics on my father's policy.  My sisters and I paid approximately $44,000 in total over 12 years  (1999-2011); Dad entered assisted living March 2011. Top facility in CT at a cost of about $100,000 per year. He died in November 2013. In under 3 years the policy paid for more than 6 times what was paid in premiums, allowing my father to live a dignified and enriched life to the end, allowed us to supervise his care, maintain our careers and to preserve my parents' and our own assets. It gave us choices and the choice was the best facility we could find,  Waveny Village in New Canaan, Connecticut, a very special place.

But LTCi is not just about nursing homes and Alzheimer's. I started my own long term care policy at age 38 because I am in a business where I see people get into serious accidents and sometimes the defendant only has a small $100,000 policy. The lack of liability coverage coupled with the fact that medical insurance is not a source to pay for long term attendant care is a good reason to start early.  i know of people who have suffered a debilitating illness like a stroke in their 30s and 40s. At this point with the policy in force for 15 years and 5% compounding each year my daily benefit is probably sufficient to give me the a choice.

There are other solutions too.

A Long Term Care Benefit Plan converts a life insurance policy’s death benefit into a “living benefit” that will allow them to remain private pay and choose the form of care that they want.

Most forms of life insurance are eligible, including term insurance. The Long Term Care Benefit Plan pays out the present day value of a policy and protects the funds in an irrevocable, FDIC insured Benefit Account that makes monthly payments directly to the care provider.  Because the funds are protected and only used for care, it is a tax-exempt, Medicaid and VA qualified spend-down of an asset that far too many seniors abandon as they move towards long term care.

This option, by design, extends the time a person would remain private pay and delays their entry onto Medicaid.  It is a unique, tax-advantaged financial option to pay for care because all health conditions are accepted, and there are no wait periods, no care limitations, no costs to apply, no requirement to be terminally ill, and there are no premium payments. Again, ANY type of life insurance policy can be used to cover any form of senior care the policy owner wants: Homecare, Assisted Living, Nursing Home, Memory Care, and Hospice.

I offer LTCi in a number of states and I am currently offering Long Term Care Benefit Plans  (life insurance conversions) in Connecticut, with other states to follow shortly.

Benefits of Long Term Care Insurance

by John Darer® CLU ChFC MSSC CeFT® RSP CLTC

 

To qualify for public payments for Long Term Care through the Medicaid program, individuals must first impoverish themselves by depleting their assets to pay for care

 

If they do so, they often cannot receive care in the setting of their choice because Medicaid restricts the providers it will cover and (despite recent efforts) still maintains its preference for nursing home settings. Moreover, roughly half of Medicaid expenditures are made by the states, and this is one of the fastest growing items in state budgets.

 

Some revealing long term care statistics from America's Health Insurance Plans (AHIP) :

 

• A 60-year-old would have to put aside $1,666 a month over 22 years to pay for the same amount of services that would otherwise be covered by long-term care insurance with a monthly premium of $188.
• Individuals who are covered by long-term care insurance reduce their out-of-pocket costs by $3,000-$5,000 a month (depending on the service setting) compared to those without coverage.
• Individuals with long-term care insurance receive on average 35 percent more hours of care than those without coverage.
• Most individuals with long-term care insurance said their coverage provided greater access and flexibility with their choice of care setting.

Speaking From Personal Experience about Long Term Care

Long term care insurance purchased when my Dad was 65 helped our family deal with the financial aspects of financing his long term care after he was diagnosed with Alzheimer's 5 years later. When Assisted Living became necessary 12 years later, we had the resources to give my Dad the best possible quality of life at a "much above average" assisted living facility for almost 3 years.    

What If You Have No Long Term Care Insurance, Can't Qualify or Can't Afford It?

There are long term care financing options for people who are on the cusp of needing long term care services, want greater choice of delivery than Medicaid offers,  but have no long term care insurance.  Life insurance can be converted into a source of funding for long term care and increase choices for the delivery of long term care services. For this reason seniors should not surrender their life insurance policies. The proceeds of  a life insurance conversion could run between 30-60% of the face amount of the policy and can be arranged to maximize tax efficiency.  This may be of greater value than a surrender, which could trigger a taxable event.

Watch for my video on Long Term Care Funding with Life Insurance

Another of my video podcasts discusses long term care/ life care funding through life insurance conversions. At present I offer long term care/ life insurance conversions to pay for long term care to residents of the State of Connecticut and hold the requisite licensing.  The service will roll out in other states as licensing is completed and I hope to introduce this service to our New York clients and other New York residents later in the first quarter.

Need More info?

For more information please call me at 203-325-8640 or contact me by email.

Also read The Benefits of Long Term Care Insurance and What They Mean For Long Term Care Financing

 

Long TIme in "The Clink" For the Life Settlement Hood-wink

Two Houston hedge fund slimeballs  have been sentenced to REALLY long jail terms for their participation in a $100-million life settlement fraud scheme that victimized 800 people in the U.S. and Canada. 

 

Many of the victims were looking for safe, conservative investments but lost their entire retirement savings, said U.S. Attorney for the Eastern District of Virginia Neil H. MacBride.

 

 

According to a report in Financial Advisor, Adley H. Abdulwahab, 36, a hedge fund manager and part owner of A&O Resource Management Ltd., was sentenced to 60 years in prison. Co-founder and vice president of A&O, Christian Allmendinger, 40, was sentenced to 45 years in prison.  

 "These defendants used the savings of their unsuspecting, often elderly, investors to live the high life—luxury houses, fancy cars and even a 15-karat diamond ring," said Assistant U.S. Attorney General Lanny A. Breuer. "Having wiped out the life savings of many of their victims and stolen funds marked for retirement, Mr. Abdulwahab and Mr. Allmendinger appropriately now face significant prison terms."

"The victims of A&O's scam were looking for a conservative investment, and they were manipulated into believing A&O was a safe, secure, no-risk investment," MacBride added. "It was all a big, fat lie; A&O was a sham, a financial house of cards waiting to collapse. Hundreds of elderly retirees saw their life savings vanish, and their lives have been devastated by their loss."

There's already a special place in Hell for Abdulwahab and Allmendinger. When I read of stories such as this one wonders whether sharia law would dole out a more appropriate remedy.

Court records said that the principals at A&O misrepresented such things as A&O's prior success, its size and office locations, its number of employees, the risks of its investment offerings and its safety and use of investor funds. When regulators began looking into the investment scheme, it was learned that the principals invented two sham companies to hide behind, Blue Diamond and Physician's Trust.

As someone who works with people who are moving through financial transitions, who appreciates their sensitivities and vulnerabilities, I find the actions of Abdulwahab and Allmendinger repulsive.  Their victims probably do not have the capability to earn back the hurt these cowardly hoodlums have heaped on them.

It is clear that the United States Department of Justice is on the hunt for wrong doing in the secondary markets for life insurance, structured settlements as well as premium finance. Earlier this week the Feds descended upon the Boca Raton offices of Imperial Holdings  to serve a search warrant related to its life finance business. Imperial said the raid came as a complete surprise and said it was cooperating with the probe.

Investments in Life Insurance Settlements Riskier Than Structured Settlements?

The word on the street is that a specialty finance company was close to being brought to its knees due to a major cash call to pay life insurance premiums on acquired life insurance policies and needed a lifeline.  

Life settlement companies acquire interests in life insurance policies from people (or businesses) who no longer need life insurance, people (or businesses) who have life insurance but are in serious need of cash and willing to sacrifice financial security for for their families or businesses in the hereafter for something now (albeit reduced). A number of life settlement companies are also involved in structured settlement factoring as a companion line of business.

When structured settlement payment rights are acquired as part of a structured settlement factoring transaction, its basically a one and done. Money is paid to acquire the rights and one simply has to rely on a life insurer (or in some cases a payment servicing company) to make the payments.

With life settlements, the purchaser of the life insurance payment rights has the additional responsibility of making premium payments, possibly for as long as the insured life lives. Prices are set based on an assumed life expectancy and an acceptable profit margin to the buyer based on the assumed life expectancy.

As we all know people are living longer and it's possible that projections may be off.  I hate to sound macabre but the hurt to the buyer comes several years down the road when the accumulation of premiums from those having lived longer than expected results in a potentially devastating cash call to the life settlement purchaser.

Disgorge Tex and the Life Settlements

by John Darer® CLU ChFC CSSC RSP

In what is sure to play out as a chilling tale of the need for greater regulation in an under regulated business, a federal grand jury in Richmond has indicted three Texas men for allegedly defrauding investors in their life insurance settlement businesses.

The 18-count indictment names ... Christian Allmendinger of Houston, Texas; Adley Abdulwahab of Spring, Texas; and David White of Missouri City, Texas, as defendants. Charges include mail fraud, money laundering, conspiracy and securities fraud.

The US government is seeking a claw back of $103 million that it says the three illegally obtained by portraying investments as risk-free and guaranteeing returns of 10-12 percent.

Stay tuned! 

P.S. A shot across the bow and a warning. The lack of regulation or under regulation makes the structured settlement  secondary market ripe for money laundering. There is a distinct lack of transparency.

Danny Pang's Life Settlement Fraud | Nothing to Do With Structured Settlements

by Structured Settlement Watchdog

The Ponzi scheme du jour involves Danny Pang, an Orange County California financier who allegedly defrauded investors in life insurance policies (life settlements/viatical settlements).

What Are Life Settlements?

• Under Connecticut law, life settlements ”means an activity involved in, but not limited to, offering to enter into, soliciting, negotiating, procuring, effectuating, monitoring or tracking of life settlement contracts"  See Definitions  CT Gen Stat § 38a-465(3). (2022)
• Under California law, California Code, Insurance Code - INS § 10113.1 (k) “ Life settlement contract ” means a written agreement solicited, negotiated, or entered into in this state between a provider and an owner, establishing the terms under which compensation or any thing of value will be paid, which compensation or thing of value is less than the expected death benefit of the insurance policy or certificate, in return for the owner's assignment, transfer, sale, devise, or bequest of the death benefit or any portion of an insurance policy or certificate of insurance for compensation, provided, however, that the minimum value for a life settlement contract shall be greater than a cash surrender value or accelerated death benefit available at the time of an application for a life settlement contract.  

Why Do People Sell their Life Insurance Policies?

• They believe that their family doesn't need the protection of an income tax free lump sum at the insured's anymore

• They cannot afford the premiums

• Health issues/large medical bills and are willing to trade a large income tax free lump sum for a reduced lump sum now.

• Sale of business if t the life insurance policies were used to finance a cross purchase or entity purchase buy sell agreementy for it either.

• Term insurance that is set to expire and they want to recover something from it.

Life Settlements Have Nothing to Do With Structured Settlements

Life settlements have nothing to do with structured settlements although it's bound to come up in the search results thanks to some shifty characters with a made for Adsense/Adwords website.

Read About Danny Pang the Life Settlement Fraudster.

Danny Pang died in 2009, after commiting suicide while waiting a 2010 trial  (UPDATED)

• ‘About That $500 Million …’ | Courthouse News Service
• Pang Firm Left Some Big Funds Unaudited - WSJ
• Receiver: Pang's Fund Was a 'Piggy Bank' - WSJ
• California Financier Accused of Massive Fraud is Dead (cnbc.com)
• Danny Pang (financier) - Wikipedia

Last updated February 16, 2024

 

If They Claim To Offer Liquidity Then Why Are They Still CHaracterizing Such Assets as Illiquid...And Other JG Wentworth Fallacies

JG Wentworth issued a press release the other day that highlights the inconsistency of its message.

JG Wentworth claims that it is the oldest and most respected buyer of deferred payments for "illiquid assets" such as structured settlements, annuities and through its dedicated subsidiary, life insurance payments.

If JG Wentworth and other companies offer liquidity then the assets are logically no longer illiquid are they? With reference to structured settlements, one can highlight a case in point where Settlement Capital Corporation's (one of JG Wentworth's oldest and most respected competitors) business description actually uses the word "liquidity". JG Wentworth has at various times advertised that it offers "cash now" through idiots on balconies and frumpy horned Viking opera singers.

With reference to life insurance, it seems inappropriate to consider life insurance an illiquid asset. If one has whole life or universal life, one HAS LIQUIDITY in the cash surrender value of the product. Borrowing against the cash value at 8% or even a market rate may even net out a lower ultimate cost than the effective discount rate offered by  JG Wentworth for modest cash needs. The liquidity that the likes of JG Wentworth offer permits you to gamble on when you're going to die because you trade insurance benefit for cash. Get cash now and forgo the larger income tax free death benefit to your family when you die. The point is that the insurance benefit does not represent your investment (while living) any more than the value of a house does at the time you make a $100,000 down payment. With the house the down payment is your investment and the return at any point is the net sale value as a percentage of what you cumulatively put into the investment. Setting aside the Stranger Owned Life Insurance argument, one buys life insurance to cover an inevitable event (death) that is only uncertain as to "how" and when?". One usually does not buy life insurance thinking "I'm paying $1,200 bucks a year for $1MM of term insurance and boy am I going to be wealthy when I die-if I die in 10 years I've turned $12,000 into $1MM-WOWEE!" One buys life insurance to fulfill a need. So called liquidity providers (like JG Wentworth) buy the rights to collect when you die.

With reference to regular annuities, these policies ARE generally liquid, but if one is under 59 1/2 and cashes in one must be aware of the IRS penalties in the tax code as an offset (to encourage retirement savings) to giving you the benefit of tax deferral. Some annuities carry surrender charges in the early years to offset the benefit of giving consumers a higher interest rate.

JG Wentworth provides a form of liquidity. Depending entirely on the circumstances the liquidity that it, or a similar company provides MAY be on better terms than liquidity features inherent in the financial products whose cash flows it purchases. The facts and circumstances of each individual case will determine the best route for a particular consumer after the consumer's sitaution has been reviewed with a qualified finacial professional.

One example that this author can see where such liquidity features may be to a consumer's advantage:

Consumer has unexpected emergency needs, owns a deferred annuity that is 2 years into a 10 year period upon which surrender charges are applied and has no other sources of capital. If the discounted value offered by the factoring company is more than the net surrender value after surrender charges are applied then the deal may make sense in that circumstance.

Life Settlements vs. Structured Settlements!

A website appearing high on search engine results, called the Structured Settlements Guide, is bloody useless, in my opinion. What purports to be an "on line informational guide to structured settlements" simply isn't. Today's Google alert on structured settlments informs us of its piece on "cash for life insurance". To clear up any confusion caused by these "fakers", here are a dozen talking points:

1. A structured settlement may be designed to pay for the life of the annuitant.
2. A transfer of structured settlement payment rights is not called life settlement
3. A transfer of structured settlement payment rights is called a structured settlement factoring transaction, a term that is defined under the United States Internal Revenue Code.
4. A transfer of life insurance payment rights is called a life settlement
5. Most structured settlements are funded with structured annuities as a "qualified funding asset"
6. Structured settlements which use annuities as "qualified funding assets" are manufactured by life insurance companies.
7. Structured settlements may also be funded with obligations of the United States Government as a "qualified funding asset". These are not manufactured by life insurance companies.
8. Life insurance policies are not funded with obligations of the United States government
9. When factoring companies or life settlement companies talk about "funding" they are not referring to a qualified funding asset. They are referring to the amount of money they will pay in "cash now" in return for the transfer of rights to receive the payments being transferred.
10. An active life insurance license is required to place structured settlement annuities.
11. In many states an active life settlement license is required to prosecute life settlement transactions.
12. Due a sustained overlook by regulators, unlike life settlements and structured settlements, people who do structured settlement factoring transactions need no license and are open to anyone and everyone without much regulation as to how such firms may advertise to consumers. Consumers are left to rely solely on the personal ethics of the practitioner and/or his/her firm and the level of knowledge and integrity of the judiciary who must approve such transactions.