The term “Secondary Market Annuity” can mean a structured settlement, lottery payment, or an existing in-force annuity that is offered for sale at a discount by one party to another, and handled by intermediary companies including DCF Exchange.
What each of these transactions have in common is that an individual who owns future payments wants cash today, and we have a market because investors with cash today seek to secure a future payment stream.
Because the seller is willing to sell at a discount, investors can secure a significantly higher yield compared to other period certain, fixed products.
In this page we’ll focus on payments that originate as structured settlements, and how the payments come into being.
Structured Settlement Annuities:
Structured settlements are found primarily in the legal system when an individual wins an award, and elects to take their monetary compensation over time instead of as a lump sum.
Here’s an Example:
John hits Jane in a car accident, and the case goes to court.
John loses the case in court, and compensation is offered to Jane, either a lump sum, or a structured settlement making payments over her lifetime. Jane elects a structured settlement.
Jane’s court ordered settlement ties closure of the case to a settlement such that “Jane Doe shall receive $1000 per month for life, with 20 years guaranteed.”
To put closure on the case, John’s auto insurance carrier- let’s assume it’s Progressive- purchases an annuity from a major life insurance carrier to pay Jane $1000 per month for life, with 20 years guaranteed. Let’s assume they purchase the annuity from MetLife.
Progressive Insurance is the owner, MetLife is the issuer, and Jane is the payee of this annuity contract. While Jane does not own the asset (the annuity contract) she can call up MetLife any time and they will tell her that she is entitled to $1000 a month for life, with 20 years guaranteed starting on the date the case was closed.
Progressive can close the book on the matter except in the unlikely event that MetLife goes out of business, and also the State Guarantee funds that guarantee Met and the other carriers operating in that state go out of business too. As this is highly unlikely, it well illustrates the safety of these contracts.
Now back to our story…. John and Jane put this accident in the past. Progressive shifted the primary liability Met Life together with a significant premium payment, and while Progressive still owns the annuity, they have no rights to the cash flow. Jane, while she does not own the asset, does receive all the cash flow benefits in compensation for her injury.
End of Story? Not yet….
Now five years goes by, and Jane needs money. She therefore decides to sell some of her future payment stream for a current day lump sum.
Met Life can not buy Jane’s contract out because it would be a conflict of interest. Also, she is not the owner… Progressive is. Instead she decides to enter into a contract with a factoring company, like JG Wentworth, to get cash now for the future payments she is entitled to.
When Jane accepts the factoring company’s offer to buy her future payments, she has just created a secondary market annuity contract available for you to purchase…
What carriers back these annuities?
Generally, very high quality companies like Met Life, Travelers, Symetra, Prudential, and John Hancock are the carriers who take in the premium from these structured settlement cases. They have rock solid credit and long operating histories, and are well positioned to make payments to the individual payees 10, 20, 30+ years in the future.
But circumstances change for the recipients of structured settlement payments. People with future payments may change their mind and want to sell those future payments for cash today.
Through an established legal process guided by federal and state law, we are able to purchase payments from individual sellers.
This is what we call a Secondary Market Annuity
The term ‘Secondary Market Annuity’ refers to structured settlements, immediate annuities, and lottery payments that are sold through specialty finance factoring companies between one private party and another in a uniform and legislated transaction process in nearly every state.
The term ‘Secondary Market Annuity’ is easier to say than ‘Factored Structured Settlement’ or ‘Previously Owned Annuity’ or even ‘In Force Annuity’ and thus SMA has become an industry standard.
It’s important to clarify up front, however, that the Secondary Market Annuities we sell are not viatical transactions. That is, they are not life insurance transactions such as re-sold variable annuities with death benefits tied to another party’s life.
Rather, the most common SMA is much like a period certain multi-year guaranteed fixed annuity. But unlike newly issued annuities with yields in the 2- 3% range, these secondary contracts come with effective rates of 5%, 6%, or even more, and come from top rated carriers.
To learn more about Secondary Market Annuities, go to the simple sign-up process on the site to get a detailed Secondary Market Annuities Buyers Guide and see our available inventory. You will then have access to our exclusive SMA inventory, and be sure to contact us with your specific purchase goals.
So who is a typical buyer of a Secondary Market Annuity?
These are great for safety-conscious investors seeking a safe investment with a fixed series of payments that handily beats today’s rates and inflation.
If you’re currently in CD’s, cash, and bonds, and not happy with the yields yet not willing to shoulder risk, then a Secondary Market Annuity is a great option to consider.
If you’re looking for safe income you can depend on, there’s currently no higher yielding way to lock in long term appreciation than with a Secondary Structured Settlement.
And when you look at long term rates of return in the stock markets, these Structured Settlements are extremely competitive and yet they completely remove all volatility and risk of loss.
Well, insurance companies are licensed in each state that they do business, and each state has an insurance guarantee fund. Amounts of coverage vary by state, from $100,000 to $500,000.
From 1995 through 2010 there were 378 bank failures. CD deposits within federal deposit insurance limits were protected by the FDIC. The same did not hold true for account balances over the insurance limits in many of these banks and not every uninsured account was made whole.
During the same time period there were only about 12 interstate insurance carriers offering annuities that needed to tap state guarantee funds. Every state guaranty fund covered at least $100,000 of cash value in the event of carrier insolvency, and according to leading Annuity industry consulting firm ‘Advantage Compendium’, only three failed carriers did not provide all of the annuity value for all of their annuity customers –
This is an even better record than FDIC for this period.
So an annuity almost by definition is safety, and it’s backed up by state guarantee funds, and by the reserves and assets of the company itself, with a top tier credit rating. Annuities in general, and the particular carriers we see offering structured settlements in particular, are among the strongest financial investments in the world. These are companies like Met Life, Prudential, John Hancock, Symetra… The best of the best.
What other safe options are there? Certainly not bonds! According to a March 22’nd Wall Street Journal Article titled “What Does the Prudent Investor Do Now?”, by Burton Malkiel,
“…Bonds are the worst asset class for investors. Usually thought of as the safest of investments, they are anything but safe today. At a yield of 2.25%, the 10-year U.S. Treasury note is a sure loser. Even if the overall inflation rate is only 2.25% over the next decade, an investor who holds a 10-year Treasury until maturity will realize a zero real (after-inflation) return. If the investor sells prior to maturity, it will likely be for less than the face value of the note if the inflation rate rises…”
So bonds are no good, and there is even less yield in CD’s- What other options are there?
The Wall St Journal article continues, “A good way to estimate the likely long-run rate of return from common stocks is to add today’s dividend yield (around 2%) to the long-run growth of nominal corporate earnings (around 5%). This calculation would suggest that long-run equity returns will be about 7%—five percentage points more than the safest bonds.”
So in other words, hold on for a wild ride up and down in the equity markets, with risk of Total loss… for about a 7% yield.
That does not sound like a worthwhile reward for the risk to me…
Given low rates on CD’s, low rates plus price risk on bonds, choppy equity markets, and low long term equity yields, there aren’t a lot of options.
The Secondary Market Annuity Solution
That’s why this market is so good. In the secondary marketplace for Structured settlement payments, you have AA rated insurance carriers making payments like clockwork, and you can get in at yields of 4% to 6% depending on the term of the payments.
When comparing Structured Settlement Annuities to other investments with far less safety, this return is fantastic.
Now, there are probably a lot of questions floating in your head. First off, things like this tend to sound too good to be true. It’s actually a question I get asked a lot, so I encourage you to read up on the market and let me know any questions you have- Please do call or email your questions, because chances are good others have the same question and it’ll help everyone to keep on expanding the answers.
I also get asked questions about why the yield is so high, and how it’s calculated. I have an entire section on yield, discounted cash flow, and geeky stuff like time value of money and XIRR formulas. I love compound interest- it’s magical. And time value of money is at the core of why these are great deals.
But beyond discounted cash flow there is a fundamental human reality at work- an individual who has a settlement has decided to sell their future payments. They are selling at a discount to present value, and you too are buying at a discount to present value. That’s why the yield is high.
I also get asked about the purchase process- there are a lot of specific things that must be done right in a Structured Asset purchase.
My approach is to make sure you are fully informed about these incredible investments and get all your questions answered, before making any decisions. That’s the only way to go.
Above all else, though, I get the distinct pleasure of publishing the largest inventory of available Secondary Annuities in the entire country, every single day. Because of the volume, I get the best pricing and I’m able to work with investors nationwide to find the exact right payment stream to suit their needs.
Call or email for all your Secondary Market Annuity needs.