by John Darer® CLU ChFC MSSC RSP CLTC
Here are primary factors that affect the structured settlement annuity rates.
- DATE OF BIRTH (If Lifetime Benefits are being considered)
The cost per $1,000 of payments for life is less expensive at the older ages
- RATED AGE
A review of medical records by a medical underwriter for a life insurance company that (1) issues structured settlement annuities and (2) issues rated ages assigns an older age to you for pricing purposes and this lowers the cost per $1,000 or boosts the yield per $1,000 cost on lifetime benefits for that annuity issuer. The rated age assigned may vary from company to company. A higher rated age does not automatically translate into higher benefits. A rated age does not affect the cost of benefits that are paid for a fixed period certain.
- LENGTH OF CERTAIN PERIOD
Life contingent payments are only paid if you are living. Certain payments will be paid whether or not you are living when a payment is due. So if you choose a 30 year certain and life, payments will be made for the rest of your life or 30 years, whichever is longer. You can choose how long or short you want. A longer certain period means you receive fewer payments while you are alive, but means you may leave more to your beneficiary if you die before the certain term is over. If you are young the adjustment is fairly modest. At older ages the spread can be more significant. In some cases a multiple product arbitrage can make a difference (contact me for details).
- THE USE OF ANNUAL INCREASES
Increases have a meaningful effect on the amount of payments you initially receive but if you are willing to wait, it can pay out more over time. That is balanced against your needs and wishes now since you must be willing to accept a lower starting amount when compared to level payments.. It's important to do a cross over comparison so that you can see how long it will take for payments on the increasing option to (1) exceed the level payments and (2) how long it will take for the aggregate payments from the increasing plan to exceed the aggregate payments on the level plan.
- DAILY RATES
Many companies offer daily rate pricing which may or may not be better than their general pricing. The threshold for offering daily rates varies by company. One company only offers daily rates. Note that daily rates are typically good until the end of the business day quoted however, some carriers will give a nominal additional amount more time, for example to the next day or in one case 2 days.
- INSURANCE COMPANY PREMIUM LIMITATIONS
Some companies have low premium limitations before they require daily rate pricing which for them may be worse.
Diversification is a good idea, but it may impact the price/yield due to variations in price between insurance companies. We have longstanding relationships with the leading insurance companies that underwrite structured settlements.
8. PUTTING TOGETHER “THE JIGSAW PUZZLE”
Sometimes we can get a better price by combining two or more companies by their strengths. One life insurance company issuing structured settlement annuities may be better for earlier payments and another for later payments. One may handily beat the competition for premium up to $1,000,000.
Sometimes there are unique considerations (1) some companies will not participate unless you have a US tax ID number (2) some companies will not mail payments to another country (will require US bank deposit account) (3) taxable damages case have options in a more limited universe.
A SIMPLE WAY TO DEAL WITH THE STRUCTURED SETTLEMENT PRICING VARIABLES
- Consider if stable income important to you? If yes...
- Consult a structured settlement expert.
- Review current sources and uses of funds, determine where the gaps are.
- How much stable income do you need each month? Or quarter or year?
- Do you want to provide for beneficiaries?
- Review and select a plan design
- Explore diversification options with structured settlement expert.
- Your structured settlement expert will daily rate shop.
Note that a structured settlement is a core settlement planning tool or option. There may be other important considerations. Always work with someone with proper credentials and experience.
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