A number of life insurance companies charge back annualized commissions to agents if the policy lapses within a short period of time after issue. The 10- or 20-day free look periods on life insurance policies and the threat of commission charge backs are incentives for life insurance agents to do their job properly and to "reinforce the sale". Should a reasonable parallel sort of system apply to structured settlement annuity sales?
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In The True Cost of Poor Settlement Planning I demonstrated the devastating financial loss that could be suffered by a structured settlement annuitant who sells structured settlement payment rights to a "cash now pusher" within months of the settlement of his or her case. In that post I highlighted the possibility that the reason that the person was selling their payment rights was because neither the settlement planner nor lawyer delved deeply enough into the plaintiff's financial situation to have the information to adequately consider liquidity. Why should the plaintiff suffer?
The problem is one of mechanics. The commission is paid by the structured annuity company as compensation for placing the structured annuity. When structured settlement payment rights are transferred the annuity is not "lapsed" or "not taken" as would be the case with the life insurance "free look" described in the first paragraph. The annuity policy is still in force with sold payments (and "serviced" payments, if applicable) diverted to the factoring company. If the commission is charged back to the agent it is charged back by the structured annuity company.
How does that help the plaintiff recover from the devastating financial loss caused by poor settlement planning that forces the need to sell structured settlement payment rights within months of creation?
Should an agent or agency be permitted to keep that portion of the commission represented by the sold payment rights under such circumstances?
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