by John Darer® CLU ChFC MSSC CeFT RSP CLTC
What are the benefits of Structured Settlement Annuities?
Consider the following headlines which have appeared in leading financial publications:
- "When it comes to Today's Retirement…You're on Your Own!" Fortune 7/11/2005
- "Americans Are Saving Less Than Ever" Business Week 7/25/2005
- "The Biggest Risk May Be That You Outlive Your Savings" Business Week 7/25/2005
Occasionally I meet someone who knocks structured settlements because they believe, heard, have seen or read that "interest rates are too low", that "better investment returns can be had in the stock market" than structured settlements… yada yada yada… and I just wonder "how well do you understand risk?" If it's the lawyer…how well does your client (understand risk)? I mean no disrespect to anyone but its not a black and white decision.
Here is a link to an article on the 4structures.com LLC web site that discusses risk and the Monte Carlo Simulation tool which is very helpful to aid in its assessment.
When should Structured Settlement Annuities be used?
- Person wants/needs income that can never be outlived. Without insurance, and annuities are insurance no one can guarantee this.
- Person wants/needs income equal to or higher than other conservative investments
- Person wants to avoid probate and pass money by contract to heirs
- Person wants to be relieved of the responsibility of investing and managing assets.
- Person is incapable of investing and managing assets
- Conservative compliment to other investments is desired
The year I entered the insurance business, 1983, was the pinnacle of high interest rates. Year after year I hear concerns that the structured settlement aspect of my business "must be awful" because of falling rates since then (now they've actually started to tick up). But business has been steady and here are some reasons why people continue to like structured settlements:
- Safety Structured settlements are a safe compliment to any portfolio
- Structured settlements offer a reasonable return with no volatility
- Structured settlements can contractually guarantee lifetime payments
- Money Management with no ongoing fees
- Structured Settlements are Income Tax-free for payment of damages that meet the requirements of Internal Revenue Code Sections 104(a)(1) or 104(a)(2), and 130
- Even if you don't desire lifetime payments, through creative and flexible plan design we can simulate and improve upon the cash flows of most bonds held to maturity (i.e. provide income for a period of years, followed by a return of the funding cost of the structured settlement in a lump sum).
- Income payments can be designed to occur more frequently than those typically offered by most bonds. Investment advisers often suggest a laddered bond portfolio as an alternative to a structured settlement. A laddered bond portfolio can be effectively simulated using a combination of structured settlement annuity cash flows.
Leave a Reply