by John Darer® CLU ChFC MSSC RSP CLTC
Understanding the common issues associated with structured settlement quotes and the funding of structured settlements is crucial for plaintiff attorneys, plaintiffs, insurance adjusters, defense attorneys, and other stakeholders involved in the structured settlement process.
Structured Settlement Quotes
How Long are Structured Settlement Annuity Quotes Good For?
The answer depends on the type of quote.
- A book rate structured settlement may be good for 5-7 days
- A daily rate may be good until the close of business on the day of quote, until close of business the following business day*, or until midnight the next day. It varies by structured settlement annuity issuer. *for example, a daily rate quoted on a Friday may be good until Monday
- A Treasury Funded Structured Settlement Quote is just an illustration. There are no lock-ins. The final numbers are determined when the Treasuries are purchased after funding.
- 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”. I
- 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 structured 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 medical information can be helpful in improving the rated age if there has been a change in the plaintiff’s medical condition.
Structured Settlement Quotes: The Timing Issues to Be Aware of
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, per CPLR §5003-a prompt payment of settlement statute, a defendant 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, like the City of New York, New York City Health & Hospitals Corporation, New York City Transit Authority or the State of New York, 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 structured settlement quotes 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 December 1st with the payment date on December 1st, 10 years later, it will have a particular price. If the structured settlement funding is not received on time and is instead received one month later on January 1st 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.
Playing interest rate trends with your or your client’s money is a dangerous game
When undertaking calculated risks, it is crucial to continually evaluate their outcomes to ensure they are favorable. Brokers who specialize in creating structured settlements, unlike representatives from factoring companies posing as brokers, hold significant lock-in privileges with structured settlement annuity issuers. By committing to fund on a predetermined future purchase date, these annuity issuers agree to lock in the interest rate for the quoted payment stream(s) and establish fixed costs. This capability is especially advantageous for minor and survivor settlements, where court approval is essential and funding may experience delays.
Structured Settlement Lock-ins
Agreeing to a lock-in is a commitment
- The annuity issuer undertakes the responsibility of securing investments to offset the liability created by the periodic payment obligation, as required by the insurance laws in most states.
- If interest rates increase during this period and the plaintiff, who had previously agreed to lock-in, seeks a better elsewhere, the annuity issuer honoring the lock-in is left at a disadvantage.
- Occasionally, an insurance company might agree to extend the lock-in, provided the annuity payment dates are adjusted to account for the delay in funding.
- However, the key takeaway is to exercise caution when committing to a lock-in.
- Structured settlement rate lock-ins are valuable tools when used appropriately, but misuse by you or your structured broker could result in the annuity issuer refusing to grant lock-ins in the future.
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