by John Darer CLU ChFC MSSC RSP
The first call she thought she had the wrong number
The second call she asked if we handled structured settlements and said she was seeking "a loan" from her structured settlement.
So I asked a few screening questions:
Q. Was this a personal injury or liability settlement? A. Personal Injury
Q. What company is the annuity with? A. I don't know?
Q. When was the structured settlement set up? A. Two months ago
Q. Two months ago? Are you aware that if you sell you will take a big hit? Why are you selling? A. Don't worry about it
Snip Snip Snipped Off as You Get It Rip Rip Ripped Off
Tragically, based on the following assumptions, this person will end up with 45% less than the cost of funding the structure 2 months earlier if she sells it with a 9.8% discount rate. Even with a 5% discount rate it would be about a 21% haircut off the cost of the annuity.
Assumptions: $1,000 per month for 240 months starting January 1, 2013, Annuity issuer is one of the leading A+ rated companies and for illustrative purposes it is priced out with all payments being sold. Prices will vary by settlement purchaser and the haircuts could even be larger with some purchasers.
One factoring company executive aptly observed that a sale shortly after creation of the structured settlement "would be tantamount to being underwater in a car lease if you chose to trade cars after two months of taking possession. It simply does not work".
Plaintiff lawyers and settlement consultants should be diligent about asking questions and probing for a plaintiff's immediate cash needs prior to the creation of a structured settlement, taking care to scratch below the surface.
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