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Structured Settlements: Annuities
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In 2001, life insurance members of The National Structured Settlements Trade Association wrote more than $6.05 billion of issued annuities as settlement for physical injury claims. This represents a 19 percent increase over 2000.
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Peachtree Settlement Funding was founded in 1997 and together with its affiliates, has originated more than $1 Billion of receivables, including structured legal settlements, lottery winnings and life settlements. Institutional relationships include Barclay's Capital, Salomon Smith Barney, Deutsche Bank, SunTrust Bank, Wachovia Bank/First Union Bank, Great West Life and Annuity, Jefferson Pilot, Lloyds of London and Bank of New York.
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The sale of a settlement structured allows a person to have access to all or part of their funds through a 3rd party company or organization. For a fee, they will transfer the annuity or insurance policy into their name and disperse all or part of the funds to the original owners as directed. Following a lawsuit, after winning a large amount of money, or an insurance annuity, the two parties involved in the payment of the funds agree on a settlement. For instance, should someone win $100,000 in the lottery, the lottery may pay out the $100,000 over 10 years or 120 months. Rather than paying the $100,000 at once, the amount is dispersed over time. This is a long term settlement.
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With a structured settlement, the annuity premium amount is ‘‘invested’’ in the annuity, which typically makes payments over time. Based on either a guaranteed payout period or a life expectancy calculation, the total amount that will be paid out can be calculated. The difference between the cost of the annuity and the greater amount of the total to be paid in the future is the internal rate of return of the annuity. Currently, it is not unusual for structured settlement annuities to have internal rates of return of five percent or more. Since structured settlement payments are income-tax free, the taxable equivalent yield would be higher (a 5 percent tax free yield for a taxpayer in the 28 percent tax bracket would be equivalent to a 6.95 percent taxable yield).
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In many cases, settlement recipients prefer to sell their annuity payments from structured settlements in order to be free of their restrictive schedule of disbursement or to receive a lump sum cash buyout. Federal and State laws allow for you to sell your deferred payments from a structured settlement for a lump sum of cash now.
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You could have a direct settlement funding or cash payout on future structured settlements like those from an insurance settlement, lawsuit, and other annuity payouts. Many individuals holding certain types of assets, such as Lottery Winnings and Structured Settlement awards, have an immediate need for a lump sum payment instead of being paid over a number of years.
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