Structured Settlement Investments Have Have Upsides and Downsides

by Antony

I don't think structured settlement investments are a bad idea Per Se. It does allow a high yield and it is viewed as a more secure instrument because the original settlement that is designed to protect the holder of the future payments wrights, often a personal injury victim, assuring that he has a means of support in the future.

It should be noted, however, that stuttered settlements are much rigid and not flexible or liquid once settled.

The claimant agreeing to a structured settlement can't change anything after the agreement is done. Not the number of payments, their amounts, structure and length of payout periods.

Nor is it liquid. You can't withdraw funds for any reason, whether dependency of the money, distrust to the annuity issuing company, and the like.

You are basically locked in. Unless you sell it, and at a discount. Exactly what structured settlement buyers are doing. You ain't investing in a structured settlement annuity only to sell it for a lump sum at a discount, are you?

So, buying out or investing in a structured settlement transfer, you'll face the exact same restrictions and limitations as the original holder. Only that you get a higher profit thanks to the fact that it was purchased from the holder at a discount and this is what you're taking advantage of.

Once again, I do not say structured settlement investments are a bad idea; they have their pros and cons. It depends on the nature and structure of settlement. If it's set up for many, many years, it has more of a disadvantage. On the other hand, structured settlements are really very, very flexible at the time of setting them up. So, if it's structured in a way that you can take out lump sums in larger amounts at some periods it reduces somewhat this drawback; on the other hand, you get a lower return on the withdrawals than you would with it remaining longer in the policy.

Perhaps a structured settlement investment sounds good as an addition and diversification of a portfolio, adding more security and setting off other risks. It carries its own risk when left going for so many years.

A partial investment in a structured settlement, perhaps, would be a more reasonable move. Everyone is different. It may well work for you.

I disagree, though, to absolute opponents of structured settlement investments. They do have their upsides.

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Jul 30, 2014
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starstarstarstarstar 		Know Who Is The Investor And Who Is Paying You
by: Anonymous

I think a very important point to mention is that the one who goes to court for the approval of the transfer and the one who is paying the insurance and attorney fees is the first buying company in the chain. So, if you buy it from them, you don't pay these. Your share, naturally, diminishes as the first company profits the most. There may still be left a nice slice of the pie to you, nonetheless.

But what really needs attention is the question whether you are actually taking over the structured settlement on your own name. Who is dealing with the insurance company that issues the annuities, and who is sending the payments to you? You have got to establish this up front to understand what you are into. Are you the final holder of the settlement payment rights, or is it the factoring company and all you have is a share in THEIR investment, in the settlement that is held by THEM. It does make a different, and it IS that important.

Jerry
Jul 25, 2014
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starstarstarstarstar 		Structured Settlements Are Low-Risk, Not Risk-Free
by: Anonymous

I would invest in a structured settlement to some degree to balance a portfolio. I wish to add that there are some additional reservations to what have already been mentioned.

First, it's not risk-free; there's a risk, although relatively low. If the structured settlement payments run for very many years, are you guaranteed that the company, even if today rated high, would hold on its strength and not get into difficulties during that long period of time?

Second, structured settlements may be thought of as "secure," but are they FDIC-insured? No. They may be backed by the State, though.

One thing that's been discussed is the lack of liquidity. What if market interest rates increase? You stay with what you have. The structured settlements are "locked in" with their structure and internal pre-set fixed rate. It doesn't change.
Jul 25, 2014
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starstarstarstar 		High-Return Structured Settlement Investments Come With A Price: Duration, And Lack Of Liquidity
by: Maria Owens

Antony, I can relate to what you are saying, but agree only in part. Usually, in business (as in life in general, I guess), there's a price for everything you gain, there's a trade off. If you buy a product, you pay. If the price is very low, or you don't pay anything, it may be that you hit a bargain, or as is more often the case, that there's a catch of some kind, "too good to be true." There are hardly "free lunches" out there.

So, when you get a very good investment, something that brings you really high returns, and you don't pay much for it, that usually rings a bell. Something has to be wrong out there. Look good before you go for it.

If you can find an investment at a yield of 6% or even 5% with zero or extremely low risk, that has to have some kind of a string attached to it. The market doesn't work this way.

So, there's a price for what you get. The question is only: what is the price you pay. It may be risk, it may be something else.

This said, with structured settlement investments, the risk indeed may be very low. Structured settlements are highly secure, paid out by very high rated and strong annuity companies and are backed by the government. So you don't pay very much in terms of risk. This, in fact, is the very reason for the low returns of structured settlements. The plaintiff will not get a very high yield. Think in the area of 2% something, or 3%, it depends on many variables, including duration of the annuity. The trade-off here is obvious: low return for low risk. This makes perfect business sense.

But what about structured settlement investments? Here you don't talk about the plaintiff, but about companies buying out the structured settlement from him or her. They will not pay the holder of settlement the value of future payments, but their Present Value. This means that there's exists a profit margin here. Remember, the plaintiff did not pay a cent for the annuities. Well, he/she did, as said, you hardly get anything for nothing; he/she might have paid with a grave injury or wrongful death (luck does strike at times; well, he/she might have won the lottery, but that is t he exception), and what he/she gets in return are the future payments. When they decide to sell their payment rights, they again don't pay anything; they get a profit, although far less than the future value of the payments. Well, let's say it again: they DO pay something. They pay the future value in exchange for the gain of the liquidity, of getting their money now instead of in the future.

This situation that is unique to the nature of structured settlements is what creates the opportunity to structured settlement investors. They buy out the settlement. They pay for it now, but they will not receive their gains until a time from now, sometimes a very long times. It may take many years to get all the payments. It's not like an investment where you get your return now. To calculate what they gain from the transaction, you have to take into account ALL the future payments, the sum of it, and then Discount it back and compare what they'll gain after receiving it all with what they they pay now, and then they will have realized their profit, a profit that may indeed be viewed as luxurious compared to many types of investments available today.

Yes, their return will be high, and no they did not take a great risk upon themselves with this investment. They did pay something, however. They paid the price of liquidity . The money simply is not liquid. You can't change a thing from the original annuities structure. You have to pay very long for your payments. The tradeoff? Well, a nice return.

That IS a price that they are paying, and it is a price that not every investor would be happy to pay. Indeed, because of this very liquidity problem, structured settlement plaintiffs are willing to sell it in the first place. For those long-term types of investors who have the will and the patience to wait it out, it is a good investment and an additional flavor to an existing portfolio.

I agree that it's not a good idea to do just this kind of investment. Success in investments is much based on diversity; more-liquid investments should diversify any portfolio and offset the structured settlement investment.

Perhaps, think of a structuredsettlement investment as a bond (zero coupon); you wait it out the maturity and realize at par value. With a structured settlement, you may get immediate payments, or starting in a time from now; you may get some lump sums - there are all kinds of mixes - but as said, the total of all the payments is what matters at calculating the return.

It is also noteworthy that the structured settlement investment field has variations. It's not always one factoring company buying out the settlement. There may be broker's involved, buying from a company who purchased it from the holder and then selling it further to other thereby slicing off a thin profit to himself. This would make it liquid to him, but returns in this instances aren't high indeed. Consider also attorney fees and transaction costs that reduce the profit margin. "Originators" may cut a higher profit. They are the buyers from the plaintiffs. They may have a motivation to further invest their payment rights and "securitize" them. If you are lucky enough to buy out a structured settlement directly from the seller, or even from the company who bought it from the seller, you can expect a higher profit.

Note that when you buy out a structured settlement, you are NOT buying the annuities; you are buying the "payments rights." This is because the original holder also did not own the annuities but only the rights to receive the future payments. The original annuity issuer remains in charge of issuing the payments, and since the issuer is usually a high rated insurance company, the security of it remains in place regardless of who is taking over the structured settlement payment rights.

In short, there's a price that you pay for a high-yield structured settlement investment. While risk may be low, liquidity is the cost of it.

Is a structured settlement investment ideal? In my opinion, it simply depends on your personality and attitude, something that should always be considered in any kind of investment. Are you an impulsive type, a long-term guy? Structured settlement investments may be right for people with cooler temperaments, those who can afford to wait it out for better returns in the long term.

It's just my opinion, and I hope it helps.

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