Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Structured Settlements Lock-In | When Should a Lock in Be Used?

by John Darer® CLU ChFC MSSC  CeFT ® RSP CLTC

With interest rates that naturally fluctuate, a structured settlement lock-in is an important tool to help stabilize the process of placing structured settlement annuities for structured settlement brokers, settlement consultants, settlement professionals and settlement planners.

A structured settlement lock-in may offer a significant benefits to claimants, plaintiffs, defendants and insurers alike at the time of case resolution.

A Lock in helps stabilize the structured settlement process

What is a structured settlement lock-in?

A structured settlement lock-in means that the structured settlement annuity issuer will guarantee the cost of a structured settlement providing a specific payment stream in exchange for the "quid pro quo" of a commitment to accept or purchase. The guarantee could be a week or, even a year.  It is important to note that it is NOT a rate lock-in, it is the cost for a specific set of benefits.  There is an internal rate of return associated with the cost/benefit combination that you are essentially locking in, but you cannot instruct a life insurance company to lock in a rate. You have to submit an illustration to lock-in.

Are there fees charged for a Structured Settlement Lock-in?

One carrier will has fee free lock ins for as long as 6 months, while others will lock-in without charge for 30-60 days.  Beyond the fee free period, longer lock ins generally require a rate commitment fee that is typically 0.2% of premium for each 30 days. The reason for applying a fee is that a life insurer has a regulatory obligation to purchase assets to cover its liabilities and they run a risk if the purchase commitment is not honored.

Examples of where a Structured Settlement Lock-in is helpful

• To secure the cost of structured settlement payments that must be expressly stated in a petition for Court approval of a settlement for minors or wrongful death action and in all settlement documents.
• Protect against downward interest rate fluctuations during the time period between the date that the parties have reached agreement to settle and the date the structured settlement is funded. 
• Where the Defendant will  not fund the structured settlement funding amount prior to receiving all settlement documents, courts orders etc.
• Where an unfavorable rate change has been announced by one of the structured annuity companies and the settlement is not likely to be funded prior to that date.
• Critical on larger cases where there is often an intricate blend of annuities from different companies as part of an integrated structured settlement plan with more than one structured annuity issuer, where two only do home office daily rate quotes  and where daily rates may be otherwise involved.
• To increase parties satisfaction with the overall structured settlement process

What Are The Potential Consequences of Not Using a Structured Settlement Lock-In?

• If the Court takes months to approve a minor's settlement  or wrongful death settlement at which time it is possible that the benefits in the petition cannot be funded at the same price. This would require the submission of a new petition for a revised (possibly lower) benefit stream and needless further delays.
• The intricate balance of different annuity issuers in an integrated structured settlement plan  could be disrupted requiring recalculations and possible re-selling.
• You might get lucky and structured settlement rates will move in a positive direction for you between the date that the agreement to compromise is reached and the date that settlement documents are executed (note this difference!).  The settlement documents expressly state the specific periodic payment obligation.
• If the structured settlement payment stream is composed of deferred periodic payments the wrong guess, if interest rates move in the wrong direction, could be devastating

A Structured Settlement Lock-in is a Privilege Not A Right!

It's important to note that a lock-in is a commitment. It is a privilege granted by the annuity issuer. It is not a right. If you are going to gamble then gamble. If you want assurance then lock in. But you must understand that when a lock-in is submitted the carrier has to purchase assets to secure the benefit stream.  If the case is not funded the annuity issuer may have to sell the bonds. Holding higher yielding bonds in a downward interest rate environment may not be a problem, but the reverse is true in a generally upward rate environment. 

Last updated September 4, 2023

 

Structured Settlement Rate Lock-in | A Critically Important Setlement Tool

by John Darer® CLU ChFC MSSC RSP CLTC

What is a Structured Settlement Lock-in?

A structured settlement rate lock-in is an important interest rate shift protection tool available to those who place structured settlements, claimants, plaintiffs, defendants and insurers alike at the time of case resolution.

Locking in a structured settlement means that the structured settlement annuity issuer will guarantee the cost of a specific benefit stream in exchange for a commitment to accept or purchase the structured settlement payment stream. The lock in guarantee could be a week or, even a year.

What are the fees for a structured settlement lock-in?

While most structured settlement annuity issuers will lock-in with out charge for 30-90 days, the longer lock ins generally require a rate commitment fee that is typically 0.2% of premium for each 30 days.

Watch my January 2011 video podcast on The Structured Settlement Lock in

Why would a party to litigation be interested in a structured settlement lock in?

• Secure the cost of a structured settlement payment stream that must be enumerated in a petition for Court approval of a settlement for minors or wrongful death action.
• Protect against downward interest rate fluctuations during the time period between the date that the parties have reached agreement to compromise and the date the structured settlement is funded.  
• If a defendant or insurer is also willing to fund the structured settlement in advance of court approval, even better.  In one case that I worked on that was subject to delays in one of the New York City Surrogate Courts the financial difference from pre-funding was over $161,000!
• Protect the settlement plan when more than one structured annuity issuer is used in a diversification
• Ultimately increase parties satisfaction with the overall process

The potential consequences of no structured settlement lock in:

• Court could take months to approve a minor's settlement  or wrongful death settlement at which time it is possible that the benefits in the minor's petition cannot be funded at the same price. This would require the submission of a new petition for a revised benefit stream (which could be worse!) and result in needless further delays.
• The intricate weave of a diversified structured settlement portfolio with more than one annuity issuer could be affected.
• In cases involving minors, incompetents, wrongful death, or where court approval is otherwise needed, the settlement documents must set out the specific stream of periodic payments.
• If the structured settlement payment stream is composed of deferred periodic payments the wrong guess about which way interest rates will go could be devastating.

Onec again, a lock-in is a commitment. It is a privilege granted by the annuity issuer to its appointed agents. It is not a right. Speculators can gamble. But when you are dealing with the needs of a catastrophically injured person with defined needs, is gambling prudent? If you want assurance then lock in. But you must understand that when a lock-in is submitted the carrier has to purchase assets to secure the benefit stream.  If the case is not funded the annuity issuer may have to sell the bonds. Holding higher yielding bonds in a downward interest rate environment may not be a problem, but the reverse is true in a generally upward rate environment. 

 

 

Locking in Structured Settlements: Challenges in Municipal, State, Wrongful Death and Other Matters With Delayed Funding

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Is prudent diversification of a large structured settlement a thrilling exercise for structured settlement planners these days, or is more like spinning plates on sticks while balancing by one foot on a ball?

 
Maybe a little bit of both!

A structured settlement lock-in is a critically important tool available to those who place structured settlement annuities such as structured settlement brokers, settlement consultants, settlement professionals and settlement planners. A structured settlement lock-in may offer critical benefits to claimants, plaintiffs, defendants and insurers alike at the time of case resolution. It's important to know what a lock-in is, how it can help and its limitations

A structured settlement lock-in means that the structured settlement annuity issuer will guaranteethe cost of a specific benefit stream in exchange for the "quid pro quo" of a commitment to accept or purchase. The guarantee could be a week or, even a year.

It is important to understand that you are locking in an annuity benefit stream and the internal rate of return derived from a payment of a premium in a lump sum today. The premium will produce income and/or lump sum annuity payments at times and amounts to be specified in the settlement agreement.

The timing of structured settlement funding may vary by (1) who is funding the structured settlement  ("the payor"); (2) the statutory requirements of the jurisdiction as to timing of payment (e.g in New York, a defendant usually has 21 days to pay from the time he/she/it has been delivered the release of liability;(3) the nature and business practice of the payor (some stretch it out to the last possible day, others pay very quickly, or will even pre-fund the structured settlement prior to receiving a release); (4) whether Court approval of the settlement, or approval of the plan of distribution of the settlement proceeds, is required before releases can be executed; (5) whether the payor is a government entity that has special funding consideration as to timing of payments; (6) whether the payor is a state insurance guaranty or liquidation fund or insolvency scheme of arrangement; (7) anything that may be stipulated by and between the parties

Some examples of the more challenging cases are:

1. Cases involving municipal entities which require a referendum to approve a settlement before releasing funds
2. Cases involving Probate or Surrogate Court approval before releasing funds
3. Cases involving a run off, guaranty association, liquidation bureau or catastrophic loss fund, such as the New York Liquidation Bureau (which under the best of circumstances wants 9 months from the date all documents are in) or the Pennsylvania Cat Fund ( once a year funding)
4. Notwithstanding any of the above, cases one or more insurers, or layers of insurers for the Defendants where there is a need for funding  delayed beyond 90 days

In a downward interest rate environment lock ins are critical as an interim interest rate shift could have a devastating effect on the yield per settlement dollar.  In an upward interest rate environment some could make an argument to speculate on interest rates. Who wants to be on the tail end of it if you are wrong?

Prefunding the structure is the simplest solution. 

The "date slide" method is another option

In such cases the settlement documents provide an agreement by the parties for each of the structured settlement payment dates tobe moved an equal number of days between the anticipated (locked in) funding date and the actual funding date, if earlier or later. This is one way to preserve the benefit amounts so that Court submissions can be made and that judges can view the exact benefits that the plaintiff is due to receive,

Those carriers who charge lock in fees muck up the works a bit, because it means there cannot be an exact day for day date slide.  In my opinion, it would be better for the carriers to instead provide seamless pricing. One forward thinking structured annuity company, Pacific Life and Annuity, announced in September that it was waiving lock in fees for 6 months.

It has come to the attention of the structured settlement watchdog that some brokers are presenting alternatives that could fail the IRS "benefits and burdens" test and possibly, are needlessly exposing their clients to tax peril.

Apparently some are putting so-called "recalibration clauses" into settlement documents, which give a judge examples "of what the benefits could be" with the caveat that the exact benefits will be calculated after court approval, or at some later date. According to one tax lawyer this author spoke to the IRS could focus on who bears the benefits and burdens of the transaction (the increase or decrease in rate, the extra lock in fees) and determine that the bearer owns the property.  This is equally problematic for both plaintiffs and defendants. For defendants, the assignment company could unwind the assignment and for the plaintiff they may not achieve their financial objectives.

The structured settlement watchdog believes that the solution to this problem involves:

1. Life insurers creating seamless pricing that has minimum of 6 months without lock in fees.

2. Standardizing "date slide" contract language that is acceptable across the industry.  The date slide language should recognize both early funding and late funding. If funded 10 days early, payment dates should be 10 days earlier. If funded 10 days late then each payment date is 10 days later than scheduled.

The structured settlement watchdog encourages constructive discussion among industry stakeholders to finalize an equitable solution.

Selection of Previous John Darer Reviews of Structured Settlement Funding Issues, Pricing and Lock-Ins

• Structured Settlement Lock-Ins ..What You Need to Know June 16, 2007

• Cost of Structured Settlement...Daily Rates  July 13, 2006

• Funding Issues Related to Structured Settlements November 18, 2005

 

 

Pacific Life Eliminates Structured Settlement Lock In Fees*

by John Darer® CLU ChFC CSSC RSP

Pacific Life and Annuity Company has announced that it is eliminating structured settlement lock in fees on all cases, effective immediately

Cases that are funded beyond the anticipated lock in date will be able to maintain the same cost provided the benefit dates are moved an equal number of days to the delayed funding.  * note funding must occur within 6 months of the lock in

The underwriting concession makes it easier to place structured settlements in a shifting interest rate environment where:

1. One or more court approvals, or CMS approval, is/are required and the defendant is hesitant to pre-fund the structured settlement.
2. Cases which involve statutory funding delays exist, such as City of New York or the New York State Liquidation Bureau.
3. Cases where one cannot pinpoint the exact funding date on the date of settlement due to conditions precedent to funds being released

Pacific Life and Annuity writes structured settlement annuity business is all states, including New York. [ Note that after this post was published Pacific Life Insurance Company became the structured settlement annuity issuing company for cases outside of New York, with Pacific Life and Annuity Company handling the New York structured settlement "beat".]

Thank you Pacific Life and Annuity

Postscript

Learn more about structured settlement rate lock ins.

The Structured Settlement Rate Lock-in | A Critically Important Tool

 

Lock In Form Asks For Settlement Broker's CLIENT'S Contact Name and Address

The lock-in form generated by Quote in The Box software for one of the structured annuity issuers is asking for a contact name and address for the Purchaser/Assignor.

Pardon my fleeting skepticism, BUT the fact is that some life insurance company relationship representatives have ended up getting hired by your competitors. Who hasn't demurred when out with someone from a life insurer who has asked who your biggest clients are? 

Therefore pay attention and do not give up the strategic intelligence of contacts that you have taken years and considerable resources to build

Furthermore, and this is not meant as distrust of our many friends at life insurance companies, but where does this information go? Is it stored in paper form, or does the information on it end up in a data base, or attached to an electronic file where these contacts can be mailed or cross sold behind the back of the settlement consultant or even the relationship manager at the annuity issuing life insurance company.

No offense to the life companies, we love them, BUT c'mon now!

A Few Settlement Brokers' "Ethical Skirts" on Lock Ins Could Lead to Changes

According to our sources it HAS been noticed that some structured settlement brokers and settlement planners have a pattern of locking in "any old benefit" to preserve a rate series and then opportunistically taking advantage of the life insurer by submitting a material modification of the payment stream, such as major change of duration.

In some case the life insurer takes a bath on the change. While the cost is not passed onto the broker at the moment it may be in the future. This author understands that a number of options are being discussed to curtail this abuse by the few, that may unfortunately impact the business of the many. Aside from additional charges to the broker that may eventually be levied, repeated changes of his origin needlessly tax the service arms of the insurer at the expense of others.

Structured Settlement Lock-Ins | What Does a Structured Settlement Lock-In Mean?

by John Darer ® CLU ChFC MSSC CeFT RSP CLTC

What Does a Structured Settlement Lock-In Mean in Terms of Benefit? Responsibility? Commitment?

Structured settlement lock-ins offer valuable benefits to plaintiffs, defendants, their respective attorneys and insurers.

Structured settlement lock-ins enable settling parties to fix benefits that are being submitted for Court approval, where the court approval process make take months and where the Court needs to see actual not hypothetical benefits. A judge can approve benefits without the fear that they are no longer available

With a lock-in, and provided the structure funding is timely, the benefits submitted in the attorney's affirmation and plaintiff's petition are the benefits they plaintiff will receive.

A structured settlement lock-in enables settling parties to fix benefits where a period of time will pass before the defendant is legally required to pay

For example, you may fund that state and local governments have an extended period of time to pay claims from the time it receives its requirements. Another of many example is where certain insurers negotiate at mediation on large cases to pay the cost of settlement over a series of months. The settlement planning process may be complex, but the structured settlement element of the plan may be decided.

With a lock-in, and provided structured settlement funding is timely, adverse interest rate movement can be avoided.

It's important that judges, attorneys, insurers and litigating parties understand that lock-ins are a privilege granted by the structured settlement annuity issuer.

When Locking in a Structured Settlement, Are You Locking in Benefits or a Rate of Return?

There is sometimes confusion about whether you are locking in a rate or locking in benefits. The latter is true, although the rate (Internal Rate of Return) is a by product. You must have a benefit stream or benefit streams to lock-in. You cannot for example, say I'm going to lock-in the rate at 5.5%. 

Structured Settlement Lock-in Tips

1. In busy jurisdictions timing of Court approval is not easily predictable. Therefore one should employ a reasonable purchase date for structured settlement lock-ins that allows a reasonable buffer for any delay.
2. It is worth consideration to include language that permits a "date slide" in the settlement documentation which acknowledges that payment dates are to be moved the number of days between the anticipated and actual funding dates in the event of funding delay resulting from a protracted Court approval process.

The following excerpt from one life insurer's lock-in commitment form does an excellent job of explaining the commitment offered by the lock-in:

"The Broker acknowledges that the Settlement Parties understand and are in agreement with the following:

•  Investment commitments will be made in anticipation of the payment of the Premium to Prudential on the Purchase Date. As a result, once the attached quote is acknowledged and locked in by Prudential, if the cost for these benefits goes up, the Settlement Parties will not be responsible for the additional cost. Similarly, should the cost drop, the Settlement Parties are not entitled to any additional benefit or cost savings.
•  The quote is locked in on the current rate series indicated on the attached quote and no changes may be made unless acknowledged in writing by Prudential.
•  The lock in may not be canceled by any of the Settlement Parties. Should a Court disapprove this settlement, a written request must be submitted to Prudential for cancellation of the lock-in or refund of the Premium (if funding has already taken place).
• Any delay in funding may result in i) the movement of the quote payment dates by the same number of days as the delayed funding or ii) a higher annuity cost.

 *IMPORTANT NOTE: The submission of this form should only occur after a settlement has been reached. If the terms of this deal may change, this form should not be submitted and this case should not be locked in. If the quote is not locked in, the Settlement Parties should be aware that the benefits and/or purchase price under the quote in question might change due to changing market conditions and pricing of the annuity issuer".

A key point is "Investment commitments will be made in anticipation of the payment of the Premium to Prudential on the Purchase Date".

This is important because, if the deal goes South, the life insurer may lose tens of thousands of dollars, particularly if interest rates move in the wrong direction. Understand what a lock-in is and what at can do for you, your client or ward, BUT don't abuse the privilege.

Last updated May 12, 2024

The "Golden Age of Structured Settlements"

by John Darer CLU ChFC CSSC RSP

Mark Wahlstrom has published a good post entitled "The Golden Age of Structured Settlements" on The Settlement Channel. Mark lays out how an Obama Presidency coupled with the inevitable consequences of recent monetary policy make structured settlements an even more attractive option. While I share Mark's optimism (and alluded to the subject, it is important not to lose sight of the fact that a structured settlement is one important alternative in the settlement planning process and that a complete needs assessment is appropriate.

An environment of rising taxes and inflation is going make liquidity needs even more important. For example, one cannot lock in a fixed rate of 2% today and expect that it will be sufficient to cover inflation in a rising inflation environment. 2% will be a joke if we return to the inflation rates of the early 1980s. Is there any question that over structuring leads to factoring and possibly factoring within the first 2 years of the structured settlement? Thoughtful planning after asking the right questions and listening will mitigate this possibility.

A rising interest rate environment will present administrative challenges for the structured settlement industry. As a trend of rising rates materializes I believe we will see greater desire to hold off making decisions to see if rates will improve. Plaintiff attorneys "jonesing" to get paid  after years of litigation will need to be cautious about authorizing lock ins until they are ready to go. If you authorize a lock in and it takes you 3-4 months to draft that special needs trust (or to get that surrogate order) the market may have shifted dramatically. This is an issue for plaintiffs, defendants and intermediaries which will have to be clearly and carefully explained to clients.

Consider:

• Litigants will want to buy more for their settlement dollars if they can.
• Rising interest rates will affect the discount rates to present value under New York CPLR  50A and CPLR 50B statutes, for cases in litigation, as well as reducing the cost of funding the future damages to be paid periodically under a structured judgment.
• Rising taxes will affect the collateral source offset under New York CPLR 4546.

Structured annuity issuers have the opportunity to introduce new product enhancements to address these issues.

In my opinion the new NSSTA piece entitled "Structured Settlements: Protection During Economic Crisis" is generally good. There are two important points for any settlement professional to be mindful of:

1. While the majority of structured settlements have been funded via annuities issued by life insurance companies, not all structured settlements are funded in this manner. A structured settlement using the  IRC 130(d) alternative Treasury Bonds as a "qualified funding asset" can match the security and financial advantages of an annuity funded structured settlement. There are other differences between the two types of qualified funding assets that are worth being part of the discussion.

2 Use of the NSSTA handout (as currently written) in a sales presentation to New York prospects may violate New York Insurance Law Section 7718, which expressly states:

"No person, including an insurer, agent or affiliate of an insurer . . .   shall make, publish, disseminate,circulate or place before the public , or cause directly   or indirectly, to be made, published, disseminated, circulated or placed before the public   . . . any advertisement, announcement or statement which uses the existence of the   [Guaranty] corporation for the purpose of sales, solicitation or inducement to purchase   any form of insurance covered by this article, provided, however, that this section shall   not apply to the corporation . . . or to prohibit the furnishing of written information in   a form prepared by the corporation and approved by the superintendent by a member insurer   directly to a policyholder in response to a written request therefor".                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Prudential Requires Name of Assignor on ALL Structured Settlement Annuity Lock Ins

by John Darer® CLU ChFC MSSC RSP CLTC

Prudential structured settlements now requires the name of the Assignor on ALL structured settlement annuity lock ins

The move was precipitated by the number of plaintiff settlement planners pulling locked-in and pending cases from AIG annuity markets and placing them with alternative markets. While some of this is to be expected (for example in minor case where Courts have minimum ratings requirements of AM Best A+) a bad business practice has been observed that needed urgent action.

In their zeal to get the job done some of these plaintiff settlement planners are forgetting that, as of the time of publication, certain annuity issuers are not on the AIG claims annuity issuer approved list. Setting aside your personal feelings about approved lists, that approved list is currently comprised of New York Life Insurance Company (AM Best A++), Allstate Life Insurance Company (and its New York subsidiary, both A+), Hartford Life Insurance Company (A+), Pacific Life and Annuity (A++), in addition to the 2 AIG life insurance subsidiaries, American International Life Assurance Company of New York and American General Life Insurance Company (both A).

Apparently Prudential Structured Settlements has been receiving a number of lock in requests from certain careless, misinformed or ignorant plaintiff settlement planners and getting burned when the cases cannot be funded with Prudential due to AIG requirements.

A Structured Settlement Lock in is a Commitment

Before you accuse me of being harsh, please remember that a lock in is a mutual commitment by the broker and the insurer that a benefit package will be delivered for a certain price if the premium is delivered on the funding commitment date. The ability to lockin is not only a valuable privilege, it is an essential tool for any settlement planner or structured settlement broker.

Please consider that when a case is locked in, the life insurer, relying on the commitment of the settlement planner or structured settlement broker, must set aside assets to cover the obligation. If the funding does not later materialize and investment values go in the wrong direction the insurer must eat the loss. The errant settlement planners and/or structured settlement brokers need to be more considerate of Prudential and any other annuity market not on the casualty carrier's approved list.

Until further notice Prudential is requiring the name of the Assignor, to verify that it is not an AIG insurer and turning down lock in requests where an AIG casualty company is the Assignor.

The heavy promoters of QSFs in the group should also be reminded that Prudential does not accept assignments from single claimant 468B qualified settlement funds.

All structured settlement brokers and settlement planners have a duty to explain to their clients what a lock in means and to avoid making such commitments when they know they cannot be kept.

 

Structured Settlement Quotes

by John Darer CLU ChFC CSSC RSP

Today I'm going to discuss some common issues related to structured settlement quotes and funding which should be of importance to plaintiff attorneys, plaintiffs, insurance adjusters, defense attorneys and other interested parties or stakeholders in the structured settlement process.

Let's say you are looking at a quote, how long is it good for? The answer depends on the type of quote. A book rate may be good for 5-7 days while a daily rate may be good for 24 hours or less. If you are making or accepting on offer based on a quote that has been given to you be sure to check for an expiration date. Some brokers place a disclaimer on the quote stating that "rates are subject to change unless the case is locked-in with a commitment to accept". If the quote is based on a rated age, the rated age must be valid. Generally rated ages are good for 6-12 months (depending on the annuity issuer). If a case has been pending for sometime, the rated age request must be renewed or the quote may not be valid. A request for renewal or reconsideration of the rated age determination is a good business practice. Occasionally a rated age has been based on aged medical information. New information can be helpful in improving the rated age if there has been a change in the plaintiff's medical condition.

The timing of structured settlement funding may vary by (1) who is funding the structured settlement  ("the payor"); (2) the statutory requirements of the jurisdiction as to timing of payment (e.g in New York, a defendant usually has 21 days to pay from the time he/she/it has been delivered the release of liability;(3) the nature and business practice of the payor (some stretch it out to the last possible day, others pay very quickly, or will even pre-fund the structured settlement prior to receiving a release); (4) whether Court approval of the settlement, or approval of the plan of distribution of the settlement proceeds, is required before releases can be executed; (5) whether the payor is a government entity that has special funding consideration as to timing of payments; (6) whether the payor is a  state insurance guaranty or liquidation fund or insolvency scheme of arrangement; (7) anything that may be stipulated by and between the parties;

A key factor in the pricing of any structured settlement quote is the purchase date. This is the date that the annuity issuer expects the structured settlement funding. If the structured settlement funding arrives later than the purchase date it can affect the cost of the annuity. Why does it affect the cost of the annuity? As an example, consider an obligation to pay $150,000 in 10 years. If this has been priced based on a purchase date of August 1, 2008  with the payment date on August 1, 2018 it will have a particular price. If the structured settlement funding is not received on time and is instead received one month later on September 1, 2008 it is 9 years and 11 months until the payment date. Thus it makes sense that the cost could be higher.  Of course if interest rates were to rise in the interim then the price could be the same or better.

There is always speculation that interest rates will increase in the near future*. Some say "how low can they go"? Playing interest rate trends with your or your client's money is a dangerous game. If you are taking such calculated risks, you need to continuously evaluate whether those risks are working for or against you. Fortunately the the broker that creates structured settlements (i.e not the factoring company representatives masquerading as structured settlement brokers) have lock-in privileges with the annuity issuers. In exchange for the agreement to fund on a certain purchase date in the future the annuity issuers will generally agree to lock-in the interest rate associated with that quote. This is particular useful when Court approval is a required for the settlement.

It's important to note that agreeing to a lock-in is a commitment. The annuity issuer actually goes out and secures investments to balance the liability created by the periodic payment obligation (as is required under the insurance laws of most states). If interest rates rise in the interim and the plaintiff attorney, who previously agreed to the lock-in commitment, goes somewhere else to get a better rate the annuity issuer agreeing to the lock-in is left screwed. Occasionally an insurance company may be willing to extend the lock-in provided the annuity payment dates are moved a number of days commensurate to the days delay in funding. However the message is that you should exercise care in agreeing to a lock-in commitment. Use it for the valuable tool that it is in the right situation. If you or your structured settlement broker abuses the privilege the annuity issuer may not grant lock-ins in the future.

If you need a structured settlement quote now, click here  for a secure structured settlement quote request firm or call toll-free 888-325-8640

* Postscript January 13, 2013. in the 5 years since the original publication of this post interest rates have actually decreased. A structured settlement established in 2008 would have outperformed many alternatives.

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