by John Darer CLU ChFC MSSC CeFT RSP CLTC
What’s the difference between a structured settlement and an annuity?
What’s the difference between a structured settlement and an annuity?
An annuity is a financial product, issued by life insurance companies, sold by licensed and appointed agents and/or brokers, that is designed to receive and grow funds from an individual and then, upon annuitization, distribute a stream of periodic payments to the individual at a later point in time. Annuities can be fixed ,variable or participate in one or more financial indexes.
- Annuities are primarily used by individuals as a means of securing a stable cash flow for an individual during their retirement years.
- A structured settlement is a method to pay damages in the form of one of more streams of periodic payments when a lawsuit is settled.
- A structured settlement annuity is a customizable specialty annuity purchased by defendants, insurers or assignment companies, that is used as a “qualified funding asset” to help resolve legal disputes or litigation. Multiple needs can be addressed in a single structured settlement annuity contract, or a series of contracts. You do not have to structure all of your settlement.
- A structured settlement can be funded with a structured settlement annuity or with United States Treasury obligations [see IRC 130(d)
- A structured settlement may also be funded with periodic payment reinsurance if the paying party is an insurance company.
Important
Warning
Beware of the “Slap on” Use of the Term Annuity by licensed or unlicensed salespeople trying to sell you receivables, which ARE NOT annuities
- A so-called Secondary Market Annuity, SMA or In-Force Annuity as those terms are used with investors IS NOT an annuity.
- A so-called Secondary Market Annuity, SMA or In-Force Annuity IS NOT a structured settlement either according to my colleague Patrick Hindert, the co-author of Structured Settlements and Periodic Payment Judgments.
- Those terms are slapped onto Structured Settlement Receivables, by marketers of investments in structured settlement payment rights [which are defined under the Internal Revenue Code at IRC 5981]
As Structured Settlement Watchdog I have made considerable effort to educate receivables investors, about the proper terminology through my writing on Structured Settlements 4Real blog, on the 4structures.com website and othe web properties.