by John Darer CLU ChFC MSSC CeFT RSP CLTC
What is Structured Settlement Payment Servicing?
Servicing of structured settlement payments is an arrangement that comes about when someone receiving a structured structured settlement enters into a transaction to sell some, but not all, of their structured settlement payment rights to a structured settlement factoring company.
Some insurance companies that are issuers of structured settlement annuities will not slice or dice payments.
To facilitate partial sales of structured settlement payment rights, a structured settlement payment servicing agreement is entered into, the result of which is that the entire payment (not just what is being sold) is paid by the annuity issuer to a third party servicing company, which will then split the payments and pay them to the relevant parties.
Structured settlement factoring companies also use servicing companies when they are the transferee of a large stream of structured settlement payments that they wish to parcel off in smaller payment streams that will attract a larger pool of potential investors.
Transfers of structured settlement payment rights by the original payee must be approved by court order in compliance with state structured settlement protection acts.
Why would a structured settlement annuity issuer not dice payments?
There is an administrative cost to dicing payments in terms of resources that some insurers may not wish to absorb. Other insurers may deal with this issue by requiring that a complete payment be sold. For example, if you have a MetLife structured settlement with a $50,000 lump sum due in 2029 and you only need to sell $10,000 of it to raise the cash, you need to sell all $50,000. But others such as Berkshire Hathaway and former structured settlement annuity issuers such as John Hancock have established hardship programs where they will
What are the negatives of structured settlement payment servicing if you are the seller?
- When there is a servicing agreement, there is a possibility that your payments will be late. You should expect that payments will be late if you go down this road. Consider that the whole payment(s) go to the servicer, where they are diced, before the remaining portion of the payment goes to you. If a payment is due on the 1st of the month in the annuity contract and it only gets to the servicer on the 1st, you will probably not receive it on the date it says in the annuity contract that funded the structured settlement, or the settlement agreement that was signed when your case was settled or the qualified assignment agreement that was part of your settlement.
- When you enter into a structured settlement servicing arrangement, it is possible that you will not be able to do direct deposit like you did when you were receiving structured settlement payments from the structured settlement annuity issuer. This means that once you receive your payment, late, you will need to wait for the check to clear after you deposit it.
- Your service requests will need to go through the servicing company. You will likely lose contact with the structured settlement annuity issuer. If you have questions of the structured settlement annuity issuer it will refer you back to the servicing company.
- If you want to sell additional payments in the future, a servicer related to the structured settlement factoring company may hinder your efforts to move forward with a competing company.
Is it necessary to have a servicing company if you have not sold any payments?
No, you will receive your structured settlement payment directly from the structured settlement annuity issuer. You will be able to contact the annuity issuer for benficiary changes
Are there negatives for the structured settlement annuity issuer?
Yes, a structured settlement annuity issuer loses branding opportunities and being connected to its annuitant by ceding the slicing, dicing and administration to a payment servicing company.
A structured settlement factoring company is also known as a transferee