by John Darer CLU ChFC CSSC RSP CLTC
Our video series on the market for in force structured settlements, including structured settlement payment rights is due to air on Legal Broadcast Network this week.
It may come as a surprise to some in the settlement industry that this market is not dismissed out of hand by all plaintiff lawyers. After all there are plaintiff lawyers investing in pre-settlement non recourse financing to plaintiffs (not on their own cases) at rates that are said to be "commensurate with risk" that the case may not ever bear fruit. Those rates could be in the range of 2-6% per month, which is far more than the rates on in-force structured settlement deals or the effective discount rates charged by individual investors to tort victims who have the misfortune to have to sell structured settlement payment rights to raise cash. State and national trial lawyer associations publish the fact that they are taking cash contributions from this very same organizations. Indeed upon information and belief one or two structured settlement general agencies are directly or indirectly involved with pre settlement funding.
For the purposes of stimulating some intellectual discussion consider this:
The Department of Treasury and the Labor Department currently published a Request for Information (RFI) on February 2, 2010. regarding retirement plan life income options. The government wants to encourage such options and the RFI noted that there are significant trends away from such options, when they are offered under a qualified retirement plan.
- Would a life income solution that packages together the purchase of payment rights to an in-force structured settlement with a longevity insurance caboose (deferred income annuity) be a good strategy for a person nearing retirement?
- How about a parallel question? Would a "structured settlement straddle" - a life periodic payment income solution that combines (1) a traditional income stream from a structured annuity (or United States Treasury structure settlement) with (2) a parallel stream derived from the purchase of payment rights to an in-force structured annuity, lottery annuity or other commercial annuity with (3) a tradition structured settlement longevity insurance caboose (deferred income component possibly taking advantage of rated age), be a good strategy for the appropriate tort victim?
For the sake of discussion let's use the DOL Regulation section 2550.404a-4 as one example of fiduciary standards for annuity selection:
"at the time of election, the annuity provider is financially able to make all future payments under the annuity contract and the cost of the annuity is reasonable in relation to the benefits and services to be provided under the contract".
With the exception of payments being serviced by third parties, the purchaser of structured settlement payment rights receives assigned payments directly from a top life insurance company such as John Hancock, Metropolitan Life, American General Life, The Prudential etc., pursuant to a Court Order which approves of the transfer of payment rights from the original annuitant.
Furthermore the cost of those structured settlement payment rights is likely to be more favorable than a commercially available annuity for period certain (guaranteed payment period).
As this discussion continues, I would like to remind members of my profession that the market for these in force payments to individuals (as opposed to large securitizations for institutions) is already active right now and growing around you.
If you would like to contribute to the intellectual discussion, please add a comment to this blog post or if you would prefer, please call, or email me privately to [email protected]
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