JG Wentworth issued a press release the other day that highlights the inconsistency of its message.
JG Wentworth claims that it is the oldest and most respected buyer of deferred payments for "illiquid assets" such as structured settlements, annuities and through its dedicated subsidiary, life insurance payments.
If JG Wentworth and other companies offer liquidity then the assets are logically no longer illiquid are they? With reference to structured settlements, one can highlight a case in point where Settlement Capital Corporation’s (one of JG Wentworth’s oldest and most respected competitors) business description actually uses the word "liquidity". JG Wentworth has at various times advertised that it offers "cash now" through idiots on balconies and frumpy horned Viking opera singers.
With reference to life insurance, it seems inappropriate to consider life insurance an illiquid asset. If one has whole life or universal life, one HAS LIQUIDITY in the cash surrender value of the product. Borrowing against the cash value at 8% or even a market rate may even net out a lower ultimate cost than the effective discount rate offered by JG Wentworth for modest cash needs. The liquidity that the likes of JG Wentworth offer permits you to gamble on when you’re going to die because you trade insurance benefit for cash. Get cash now and forgo the larger income tax free death benefit to your family when you die. The point is that the insurance benefit does not represent your investment (while living) any more than the value of a house does at the time you make a $100,000 down payment. With the house the down payment is your investment and the return at any point is the net sale value as a percentage of what you cumulatively put into the investment. Setting aside the Stranger Owned Life Insurance argument, one buys life insurance to cover an inevitable event (death) that is only uncertain as to "how" and when?". One usually does not buy life insurance thinking "I’m paying $1,200 bucks a year for $1MM of term insurance and boy am I going to be wealthy when I die-if I die in 10 years I’ve turned $12,000 into $1MM-WOWEE!" One buys life insurance to fulfill a need. So called liquidity providers (like JG Wentworth) buy the rights to collect when you die.
With reference to regular annuities, these policies ARE generally liquid, but if one is under 59 1/2 and cashes in one must be aware of the IRS penalties in the tax code as an offset (to encourage retirement savings) to giving you the benefit of tax deferral. Some annuities carry surrender charges in the early years to offset the benefit of giving consumers a higher interest rate.
JG Wentworth provides a form of liquidity. Depending entirely on the circumstances the liquidity that it, or a similar company provides MAY be on better terms than liquidity features inherent in the financial products whose cash flows it purchases. The facts and circumstances of each individual case will determine the best route for a particular consumer after the consumer’s sitaution has been reviewed with a qualified finacial professional.
One example that this author can see where such liquidity features may be to a consumer’s advantage:
Consumer has unexpected emergency needs, owns a deferred annuity that is 2 years into a 10 year period upon which surrender charges are applied and has no other sources of capital. If the discounted value offered by the factoring company is more than the net surrender value after surrender charges are applied then the deal may make sense in that circumstance.
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