by John Darer® CLU ChFC MSSC RSP CLTC
This appeared on settlement planning industry veteran Jack Meligan's website** in answer to the question "What are Structured Settlements?" at the time of posting:
"Instead of taking the entire settlement or judgment in cash, you have the option to “structure” all or a portion of your recovery in order to generate future payments designed to coordinate with your future needs.
The original defendant will generally “assign” his/her obligation to make the future payments to a major life insurance company (such as New York Life, MetLife, John Hancock, MassMutual, etc) and the payments are then paid to you by the life insurance company in the form of an annuity".
1. Please have a look at this flow chart which lays out the steps of a structured settlement transaction.
2. Meligan is incorrect for the blanket statement that the (qualified) "assignment" is to a life insurance company. Only one of the current qualified assignment companies in the structured settlement industry (New York Life Insurance and Annuity Corporation, which is used for New York Life Insurance Company funded structured settlements) is a life insurance company.
3. Even so, that company is not the company that issues the structured settlement annuity. Meligan implies incorrectly that the "life insurance company" does two things (1) taking on the obligation to make payments THEN (2) pays the plaintiff in the form of an annuity.
4. Following the above chart (assuming the structured us funded with New York Life): At Step 2, New York Life Insurance and Annuity Corporation, the assignment company for New York Life Insurance Company funded structured settlements, takes on the obligation to pay the Plaintiff and then at Step 3, it purchases an annuity from New York Life Insurance Company to fund its obligation. Then, at step 4, It directs the annuity issuer to pay the plaintiff directly or, if applicable, to the plaintiff's trust.
5. Structured settlements may also be funded by obligations of the United States government. In such cases the qualified assignment company will not be a life insurance company.
6. While Massachusetts Mutual Life Insurance Company ("MassMutual") is a life insurance company, it is no longer writing structured settlements. Thus, including them as a "such as" is not correct.
Structured Settlements 101. It's not rocket science!
**as of May 10, 2010 6pm EDT