by John Darer® CLU ChFC MSSC CeFT RSP CLTC
Consumers may not completely understand difference in protections between being payees or beneficiaries of structured settlement annuities or buyer/payees of receivables
1. a fixed annuity or receiving an annuity funded structured settlement (which generally is a fixed annuity); a different set of protections when buying
2. a variable annuity (or receiving payments from a variable structured annuity;
3. a index linked structured setttlements
4. structured settlement receivables (a/k/a acquired structured settlement payment rights and other names)
A Common Ancestor But No Uniformity on Suitability Standards
Like Charles Darwin’s finches (right), the first three annuity types come from “a common ancestor”; however, there is no uniform set of rules on suitability standards, supervision and training of salespeople, disclosures or advertising even though consumers often buy all three types of annuities for the same reasons. Consequently, the level of disclosure and protection investors receive varies depending on which agency regulates the version of the product they’re buying.
Literal vs Figurative Use of the Term Annuity
Asserting that purchasing a stream of structured settlement payment rights from an annuitant who is selling (and assigned the rights from another annuitant’s prior purchase) constitutes “buying an annuity (in the commercial context in which the term “annuity” is commonly used under state insurance law) is highly misleading. This claim cannot and should not be interpreted literally.
However, the manner in which some advertise may create a false impression what is being sold is a standard branded annuity product from companies such as MetLife, New York Life, and others.
If you were actually buying a regular annuity the transaction would work something like this:
- A insurance agent licensed to do business in your state who is also an appointed agent the life insurance company issuing the annuity, would take your application
- You would sign the application.
- You would give the insurance agent a check made payable to the life insurance company that issues the annuity.
- A short time later (say 30 days) you would receive an annuity contract with your name on it. You would have a certain number of days to look over the contract, mull over your purchase and give it back to the company for a full refund of the money you invested (“free look period”)
Notwithstanding the above four points…
If the buyer of an annuity is a senior, or if a variable annuity sale is taking place there are strict rules for the manner of solicitation and determination of suitability
- 1. Insurers, which are for the most part huge financial institutions, have a supervisory responsibility over their agents in this regard;
- 2. With variable annuity sales, there are both insurance regulations and securities regulation that must be addressed with EVERY sale.
How does the typical purchase of structured settlement receivables by an investor differ from an annuity purchase?
If you buy structured settlement receivables, the transaction would typically work something like this:
- You know a broker or intermediary, who finds cash flows for you, or you observe a cash flow that you like from a chart circulated by a broker of structured settlement payment rights or through an on-line auction.
- You fill out a reservation form and return it with 10% of the estimated cost of purchase.
- You sign a Receivables Purchase Purchase Agreement
- From 30-90 days pass, during which time it must be determined, among other things, that the payments have not been previously sold, that there are no child support payments, tax liens, or other liens against the payments., the deal must be reviewed by a judge as being in the selling annuitant’s best interest or that of their dependents,
- The buyer must wire the remaining cash to pay for the purchase
- The buyer must make sure, among other things that the annuity issuer of the transferred payment rights records the buyer’s name in its records.
- A closing book that is 2-3 times as thick as an annuity contract is given to the buyer. There is just no way to sugarcoat this. For some it will be as confusing as sh*t. One vendor has interposed a trust to purchase and hold the payment rights for the trust beneficiary. Whether through a trust or bought individually, the buyer does not get the underlying annuity contract.
THE BIGGEST POTENTIAL PROBLEM FOR BUYERS OF STRUCTURED SETTLEMENT PAYMENT RIGHTS. Uncertainty about statutory protection. While the fat lady has not yet started to sing, one should watch very carefully to see how structured settlement purchasers of Executive Life of New York structured settlement payment rights are eventually treated.
Do the “buyer structured settlement payment recipients” enjoy the same statutory protections that the regular structured settlement recipients” (i.e. Former plaintiffs) do? While this may not be a concern to risk tolerant investors, this raises valid questions about the suitability as investment for certain types of tort victims. I am also not aware of Professional Errors and Omissions liability insurance coverage that covers insolvencies.
The market for structured settlement payment rights is under-regulated. There are no mandatory disclosures governing solicitation, no rules concerning solicitation of seniors, cripples, soldiers, veterans, widowers, quadriplegics, day laborers, the mentally insane, or the average Joe
There is a distinct difference between purchasing an “annuity” and acquiring “structured settlement receivable” an investor
Those who currently advertise receivables as “annuities” should consider making it more clear in their advertising what it is they are really selling,
I’ve heard some rumbling that some life insurers issuing structured settlement annuities who see their brands being indiscriminately associated with unregulated derivative products are considering action that might result in some loss of appointments.
Last updated November 2, 2025
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