Now that you understand the basics of Structured Settlement Annuities from the guide above, lets discuss a few more details.
Types of Structured Settlement Annuities
There are two types of Structured Settlement Annuities. The first is a structured settlement, and the second is a lottery payment.
About Structured Settlements:
Very often, winners of legal cases- such as a workplace injury, a slip and fall claim, a car accident- elect to take their settlement over time, to have income instead of a large lump sum. this makes a lot of sense for people who have suffered injury and may not be able to work. The IRS favors these structured settlements because they want injured parties to have a reliable source of income, and consequently the IRS treats these qualified settlements as tax-free awards.
Life happens, however, and the circumstances may change for the individual who won the award. In future years after they receive their settlement, they may wish to sell their future payments for cash today. At that time, the seller engages the services of a factoring company who makes an offer to purchase the future income.
The future income stream is generally a fixed, definite payment contract. It may include lump sums, annual increases, deferral periods, or it may be contingent on the lifespan of the seller. But bottom line, it is a fixed series of cash flows that are being sold by the individual. The factoring company puts a discount rate on those future income payments, and makes those future income payments available through brokers such as Annuity Ace for individuals to purchase.
The Purchase Process;
The purchase process can take as little as 24 hours or as much as 60 days, depending on the type of case you reserve. The principals of this site are owners of the nations leading wholesale distributor of Secondary Market Annuities to agents and agencies,and take a principal role in each transaction. They extend their own capital to buy cases and market them both on a ‘pre-order’ and and ‘in stock’ basis.
We buy each case and employ specialized legal counsel to review all the transfer contract documentation. Each case also needs to be seen in a court of competent jurisdiction to rule if the sale is in the seller’s best interests. It’s important to note that the court procedure rules solely if it’s in the seller’s interests- the court itself does nothing to validate the existence of the payments or the validity of the transfer. There are a host of other steps to the transfer that we follow.
That said, it is very important that the court process be followed when transferring payments from one party to another, because an improperly handled structured settlement transfer may be subject to a penalty tax by the IRS. The structured settlements that we sell at Annuity Ace all follow rigid legal guidelines to ensure that the payments are transferred as part of a ‘qualified order’ under IRS guidelines that are adopted by nearly all states.
About Lottery Payments
The second type of secondary market annuity commonly found are lottery payments. Individuals who win lottery payments and elect to receive their payments over many years as opposed to in one lump sum often change their minds in the future. Just as with a structured settlement, they approach a factoring company to purchase those future payments.The transfer of those payments to you as a buyer also requires a court process to unequivocably assign the payments to you. This is an investor security measure that is very important.
An important distinction between structured settlements and lottery payments is that lottery payments are fully taxable to the original buyer. State lottery commissions withhold state and federal taxes from lottery payments, so as a new owner of a lottery payment stream, you will need to file a tax return in the state that the lottery originated in in order to reclaim some portion of that withholding based on your tax rate.
Security of Structured Settlement Annuities
Structured Settlement Annuities offer unparalleled safety for investors money because the issuing companies who make the payments to the original party are generally very high credit. These are companies such as Met Life, New York Life, Transamerica, etc- the top tier of insurance companies with A to AAA credit ratings. In addition, the court process and legal review we do on your behalf as the buyer during the purchase ensures that the payment stream is unequivocably yours.
The sellers credit history, any claims to income such as alimony, child support, or garnishment, are thoroughly investigated and cleared prior to court. You received clear and complete title to the payment stream together a court order benefiting an entity controlled by you entitling you to the payment stream, and an acknowledgment from the insurance company showing the payments have been transferred. The transfer process is absolute and thorough.
Benefits of Secondary Market Annuities and Structured Settlement Annuities
In addition to the credit quality of the underlying insurance carrier, secondary market annuities offer higher rates of return than primary annuities due to the discounted purchase price.
- Secondary market annuities also offer a fixed rate of return over a fixed period of time. In many situations, this is preferable to the unknowns of an indexed annuity, and when compared with a fixed annuity, the yield from a secondary market annuity is much higher.
- For investors seeking an above market, safe money rate of return for a known duration, there is no other investment currently available with comparable rates of return and safety.
- Secondary market annuities can also be purchased with IRA dollars in a self-directed IRA.
- In contrast to variable annuities and fixed indexed annuities, secondary market annuities have no fees or ongoing costs. The purchase price for a secondary market annuity includes all legal review, closing costs, and transaction costs. There is no annual cost, with the sole exception of costs to administer your IRA if that is applicable.
Drawbacks to Secondary Market Structured Settlement Annuities
No annuity is without drawbacks, and secondary market annuities are no exception. First and foremost, secondary market annuities are not generally liquid investments. While we can facilitate the resale of contracts, there is no guarantee of the rate at the time of sale nor are there contractual sale rights or liquidity options.
Additionally, secondary market annuities take some time to place. Often an investor may need to buy multiple contracts in order to achieve the income stream they desire. Also, when buying secondary market annuities in the ‘pre-order’ stage, there are occasionally contracts that are not approved the court. This happens for a variety of reasons usually relating to the seller.
Consequently, investors considering secondary market annuities need to be flexible and willing to replace contracts that do not come together with new offers. Typically, they can take 1 to 2 months to find just the right set of offers to fill an investor’s order.
Secondary Market Structured Settlement Annuities Summary
Secondary market annuities represent a fantastic way for investors to earn an above market rate of return with an excellent credit quality. For investors considering fixed indexed annuities with lifetime income rider’s, a secondary market annuity for a fixed period of time together with an immediate annuity in the future will often yield a higher level of income to the investor. To find out more about secondary market annuities, be sure to sign up for e-mail notifications from the site.