by John Darer CLU ChFC MSSC CeFT RSP CLTC
What is a Structured Settlement Lock-in?
A structured settlement lock-in (or lock in) means that the structured settlement annuity issuer will guarantee the cost of a structured settlement, including the specific payment stream in exchange for the “quid pro quo” of a commitment to accept or purchase. The guarantee could be a week or, even a year.
A structured settlement lock-in (or lock in) is a critically important tool available to those who place structured settlement annuities such as structured settlement brokers, settlement consultants, settlement professionals and settlement planners.
A structured settlement lock-in offers significant benefits to claimants, plaintiffs, defendants and insurers alike at the time of case resolution.
What are the fees for a structured settlement lock-in?
While most structured settlement annuity issuers will lock-in without charge for 30-60 days (Pacific Life will charges no lock-in fee for up to 6 months) , the longer lock ins generally require a rate commitment fee that is typically 0.2% of premium for each 30 days
Why would a party in litigation be interested in a structured settlement lock in?
- Secure the cost of a structured settlement payment stream that must be enumerated in a petition for Court approval of a settlement for minors or wrongful death action.
- Protect against downward interest rate fluctuations during the time period between the date that the parties have reached agreement to compromise and the date the structured settlement is funded.
- Protect the intricate weave of the rates in an integrated structured settlement plan with more than one structured annuity issuer.
- Increase parties satisfaction with the overall process
The Risk of No Structured Settlement Lock in
- Court approval for a minor’s settlement or wrongful death settlement can take months, during which time the benefits outlined in the petition may no longer be fundable at the original price. This would necessitate submitting a new petition for a revised benefit stream, resulting in unnecessary additional delays.
- The intricate weave of an integrated structured settlement plan with more than one annuity issuer could be disrupted.
- You might be fortunate if structured settlement rates move in a favorable direction between the date the compromise agreement is reached and the date the settlement documents are executed (note the distinction). The settlement documents must clearly outline the specific stream of periodic payments.
- If the structured settlement payment stream is composed of deferred periodic payments the wrong guess could be devastating.
A Lock-in is a Commitment
If you are going to gamble then gamble. If you want assurance then lock in. But you must understand that when a lock-in is submitted the carrier has to purchase assets to secure the benefit stream. If the case is not funded the annuity issuer may have to sell the bonds. Holding higher yielding bonds in a downward interest rate environment may not be a problem, but the reverse is true in a generally upward rate environment.
“Once you lock in a rate, you lock in the bond math: when interest rates rise, the value of earlier commitments falls.” — U.S. SEC, Office of Investor Education and Advocacy, 2026.
One carrier indicated to me that it has been flooded with requests to change lock-ins commitment by structured settlement brokers or settlement planners and hammered by lawyers with structured attorneys fee deals that threaten to pull out if they don’t get a better rate.
Phantom Lock-ins by Unethical Brokers
I also understand that there is a structured settlement broker or two whose business practice appears to be to lock in a phantom benefit stream to get a rate before a benefit stream has actually been fully agreed to and then go back to the carrier with a modification. There may also be parties who will agree to lock-in with one broker and then go to another broker to circumvent the lock in.
Why Breaking the Lock Becomes Economically Punitive
- The carrier must buy assets to match the promised stream. Once the lock is submitted, the insurer begins securing the bonds or derivatives needed to fund the future payments.
- If the case doesn’t fund, the insurer may have to unwind those positions. In a falling‑rate environment, selling higher‑yielding bonds is not harmful; they sell at a gain.
- In a rising‑rate environment, the opposite is true. When rates rise, the market value of the bonds the carrier just purchased falls — the SEC’s 2026 guidance states plainly: “When interest rates rise, the prices of existing bonds fall.”
- That loss has to be absorbed somewhere. The carrier will not voluntarily take it. The only way to reopen the lock is to make the carrier whole, which shrinks the option set to almost nothing.
Carriers could remove or restrict the lock-in privileges of structured settlement brokers, settlement consultants, settlement planners and settlement professionals who abuse the lock in process. It’s important that ALL primary structured settlement stakeholders understand this process and what the commitment means.
Insurance companies want to be seen as having and, may be required to have, fair and consistent business practices.
Use of Lock ins for Structured Settlements established from a QSF
Consider a case resolved with a single claimant 468B qualified settlement fund. The IRS could audit, review the activities of the single claimant 468B qualified settlement fund and conceivably argue that the pattern of agreeing to a lock in followed by the rejection of that lock in, followed by a one or more locks and re-locks for higher interest rates over a limited period of time demonstrates that the major purpose of the QSF was an economic benefit, an element of control, abusive, and not to resolve outstanding claims.
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