by John Darer CLU ChFC CSSC RSP
While I look forward to what Mark Wahlstrom has to say in his 5 part series on LBN about what to do in this low interest rate environment, I'd like to use some secondary market deals that were available this week to demonstrate the dynamic growth potential of this financial tool as a viable financial planning alternative.
First let's recognize that there are literally tens of billions of dollars of structured settlements with lump sums coming due.
Although a sale is now pending, earlier this week one could have bid $231,633 for the structured settlement payment rights to payments from a Hartford Life Insurance Company structured settlement
Beginning 08/19/2010 $3,000 per month for 9 months; THEN
Beginning 05/10/2011 $3,100 per month for 84 months (7 years)
Guaranteed Yield 6.00%
AND/OR, you could have bid $93,629 for the structured settlement payment rights to payments from a Liberty Life Assurance Company of Boston structured settlement with the following payments:
Beginning 09/1/2010 $1,220 per month for 96 months (8 years)
Guaranteed Yield 6.00%
AND /OR you could have bid $55,284 for the structured settlement payments rights to payments from an American Family annuity (AA-S&P) with the following payments:
Beginning 09/01/2010 $200.00 per month for 67 months; THEN
Beginning 04/01/2016 $600.00 per month for 146 months (just over 12 years)
Guaranteed Yield 6.28%
Stacking these 3 secondary market structured annuities together would generate in excess of $53,040 annually for at least 8 years for a total cost of $380,546.
Does this seem like a viable and /or sensible alternative for existing structured settlement annuitants who:
- Have lump sums coming due this year
- Are skittish about the volatility of the investment markets and seeking a conservative alternative,
- Are disillusioned with low interest rates on offer by banks and government agencies
- Are comfortable with annuity payments, having already received them for many years
- May have tax deductible expenses to offset against the income from the structured settlement payment rights?
Does this seem like a viable and sensible alternative for retirees with a similar risk profile?
What is the market potential for this?
Over $100 billion of structured settlement annuity premium has been placed. This translates into many multiples more in benefits. Many of those annuities were designed with a series of large deferred lump sum payments. Who is contacting the annuitants? Who should be contacting the annuitants?
If life insurers issuing structured settlements would maintain their own "used annuity lots" or "structured settlement factory outlets" their licensed and appointed agents could contact these annuitants and offer them a viable alternative to low interest rates and the latest cold caller with a hot idea.
The rest of the secondary market would still have a place at the table due to the number of annuity issuers who no longer write structured settlements.
Warning about secondary market investments in structured settlements
Bear in mind that investing in structured settlement payment rights IS NOT investing in an annuity. There are transactional risks that you would not have if you would buy a legitimate annuity.
Always trying to keep you thinking!