by John Darer CLU ChFC CSSC RSP
Seems to Good to Be True
What is being left out of the promotion?
If you have around $18,500 sitting in your IRA, Roth IRA or profit sharing, don’t have any restrictions on where you can place your money for the next 20-30 years, you can lock in an internal rate of return of 7% and produce a laddered payment stream, starting in 20 years, with a total payout of $88,116 over that time period according to advertising appearing at time of posting. Seems too good to be true when you compare that to the 30 year Treasury Bond that was yielding 3.908% at the time of writing they say.
To be fair, the investments in structured settlement receivables do not have equivalent risk profiles to United States Treasuries or annuities.
Backed by an Annuity that you DO NOT Own
The aformentioned structured settlement payment rights are backed by a structured settlement annuity issued by Metropolitan Life Insurance Company (“MetLife”). MetLIfe is the USA’s largest life insurance company. But there’s a big ole BUT!
- Investors aren’t actually buying an annuity and have no ownership or control over the underlying asset. The seller doesn;t own the annuity either.
- Instead, receivables come with a higher risk profile compared to annuities and may only represent a small fraction of the payment rights.
- There could also be a third-party servicing agreement in place, meaning investors might need to deal with a separate servicing company rather than the original annuity issuer. Payment servicing can bring confusion at a time when you want things to be simple.
- There is no MetLife annuity application, the intermediaries are often unlicensed and the sales practices are unregulated.
If you had around $57,450 there one intermediary at the time of original publication, advertised the opportunity to acquire a 19 year income stream emanating from a structured settlement funded by an annuity (or payment stream segment of an annuity) issued by Metropolitan Life Insurance Company. The Internal Rate of Return in that case was advertised by the receivable vendor to 6.27%
Receivables Acquisition Process is Totally Different than Buying an Annuity
- The purchase of structured settlement receivables differs from buying a standard annuity, as these rights are obtained through a court-approved transfer.
- A judge must determine that the transfer serves the seller’s best interest.
- Due to the limited availability of such deals, they are often offered within a short window of time.
- To acquire such receivables, a 10% deposit is typically required through an intermediary, with the remaining balance paid at closing following the approval of the structured settlement transfer.
- Such investments are not for everyone. Buyer beware.
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