by John Darer CLU ChFC MSSC CeFT RSP CLTC
You want to keep a structured settlement for what it WILL do, not what it might do. The "will do" is the contractually guaranteed income inherent in a qualified funding asset issued by a regulated life insurance company.
Some structured settlement cash now companies attempt to twist people out of receiving payments from 15-20-30 year old structured settlements for pennies on the dollar, using a dubious investment projection of what might happen from a financial advisor, but compare to current rates. A number of structured settlement cash now companies link up with the financial advisors to target vulnerable individuals.
If you're in your 30s, 40s or 50s and have a structured settlement that was established when you were a child in the 1980s or 1990s, be mindful that the base rate of return on your investment should be calculated from the original cost of the annuity. Start with that rate of return, nearing in mind that it is income tax free if the structured settlement payments represent damages for a personal physical injury, wrongful death.
The use of current rates for comparison of your childhood structured settlement with alternative investments is simply not credible. On July 22, 1996 the 30 Year US Treasury bond was yielding 7.02%. 25 years later the 30 year Treasury yield was 1.90%. But the return on the original cost of the structure has not changed. It was locked in when the structured settlement was established. Furthermore, because the investment portfolios of life insurance companies are not solely invested in United States Treasuries, the Internal Rate of Return on the original cost of structured settlement would likely have exceeded the 30 year Treasury.
If your structured settlement is for payment of damages for personal physical injury, physical sickness or wrongful death the payments are income tax free subject to IRC 104(a)(2). If you encounter one of the charlatans, take their projected rate of return and discount it for taxes. Use 4structures.com LLC's free Taxable Equivalent Yield Chart to learn the net return on their projections. You can also use the taxable equivalent yield chart to learn what you would have to earn in a particular tax bracket to end up with the rate of return locked in when your structured settlement was established.
Once again, you will want to keep a structured settlement for what it WILL do, not what it might do.
If you have experienced this and want to speak about it feel free to contact me.