Annuity Structured Settlements are agreements that you can make using your insurance, through a third party financial institution where you would agree to pay each year for the rest of their life. The terms of the payment would be agreed upon on the first day itself. If you go through with a annuity structured settlement, you would realize that you are not forfeiting the entire amount in one go and are paying wisely. This helps in the long run since you aren’t blocking all the funds in one go.
The Structured settlement system started in Canada for children who were suffering or affected by Thalidomide. Nowadays, as a result of the federal tax code structured settlements are considered to be the best recourse in the case of accidents or physical injury. Lakes of victims of accidents have been able to avail of the benefits of structured investments. A very safe way of getting income in the future is through annual structured settlements from insurance companies. All investments that can be made by insurance companies are regulated by the state and the rules might be different from state to state and country to country.
Insurance companies usually invest in bonds; at least this can be said for the larger portion of their investments. Fluctuations in bonds and stocks do not came in the way of payment of annual structured settlements. When any person makes an agreement with an insurance company for annuity structured settlement, the insurance company has to keep aside an amount in reserve to make the future payments.
How does state government help in structured settlement?
State regulators see that structured settlements are secured and the interests of people investing in structured settlements are taken care of. All insurance companies operating in the state must follow the rules laid down by the state insurance department. Insurance companies need to have sufficient reserves for all investments that are permitted.
Working of Annuity Structures Settlements
Annual structured settlements have been very secure. In the last few years the rules are made more stringent. All the states have supported enhancing the rules to decrease the risk in annuity structured settlement. The following are the rules:
- Accounting rules have been made more secure by checking on the capital that is at a risk
- Regular yearly audits
- Unplanned audits and autonomous analysis are carried out to see if they follow the rules.
- Standard rules are followed for security of investments.
Advantages of Buying Annuity Structured Settlements from the First Annuitant
Whenever a person who receives an annuity structured settlement wants the total amount a broker steps in and the annuitant loses a certain percentage of his money for the lump sum. The broker then sells to the party who is interested in buying it. The buyer is at a profit buying the annuity structured settlement directly from the seller.
With annuity structured settlements, you can get twice the corporate bond amount or bank deposit certificates. If an investor wants to purchase an annuity he has to approach insurance company which is the same insurance company which issues structured settlements arranged by the broker who involves a substantial commission and very low yield. Annuity structured settlement is paid by the insurance company which has capital reversed for it.
In one of the very rare cases when an insurance company gets in trouble, the state insurance commissioners have the power to act. Under the supervision of the court, the commissioner will try to rebuild the company so that it can meet its obligations.
The advantages of purchasing annuity structured settlements
- Annuity structured settlements help to get better returns then fixed deposit from banks and other companies.
- When you buy the annuity you get a written statement on how much will be paid annually or whatever parameters have been chosen.
- The process of investing lies completely in the hands of the purchaser. The seller directly assigns the payment rights of the structured settlement to him. This process does need court approval and once this is done, the purchaser is then able to obtain cash directly from the insurance company. However, it is essential to ensure that the broker has no control of the money or assets of the purchaser.
- The structured settlement have the backing of the contracts that are issued by the insurance company which is regulated by the state
- You will be able to save some amount of your money on tax, since the investment amount is tax exempt up to a particular amount.
Are there any cons with this system?
Everything isn’t all rainbows and butterflies you know, and if something comes your ways looking all rosy and shiny, you have to think twice about it cause there is something that you aren’t being told.
- If you go through the structured investment pattern on the stock market, you are guaranteed to get back the amount that you invested. Sadly though, you would have to wait till maturity. What this means is, you are protected if the market goes down and would be sure to get your investment amount, but if there is a rise, you would only get a percentage of the rise.
- Another downside of this is that you have predefined terms that you put in stone on the first day itself. This means that you have to follow through on the payment schedule decided on the first day. At any point of time, if you find that you cannot pay, you would then be defaulting.
- If you happen to have the same amounts invested in a company or a mutual fund, there is a chance that you could get dividends from the companies you are investing in. Sadly, if you are going with a structured payment, there will be none of these.
- You might find that the investments that you are making are not very transparent and this might cause some people investing in them a little distress.
That’s it, after weighting the pros and cons, it is always in the hands on the investor to make up his or her mind and look at their long term plan and how they could get money to work for them. However, opting for annuity structured settlements is certainly being seen as a useful financial option.