Risk Mitigation of Purchasing from Annuitant
The purchasers return on the investment is based entirely on timely receipt of payments outlined in the court order which assigns the rights to those payments to the Purchaser. The risk associated with receipt of those payments is mitigated by the historical performance of the asset, as well as the various guarantees that may apply.
- In most cases, the seller has already been receiving payments related to the original Structured Settlement. This indicates that the insurance company has accepted that obligation, and has established a pattern of making timely payments.
- Annuities are typically secured through a process of matching assets, meaning that the insurance entities typically invest the original principal received from the defendant or assignment company into investments which offset the obligation.
- The annuity companies have historically performed as agreed.
- The Court Order process establishes the rights of the purchaser related to receipt of the payments, as well as the completion of a process that includes the acceptance and acknowledgement of the specific insurance entity.
- Annuities are “Claims Paying” obligations, and they supersede other creditors in the unlikely event of default or liquidation.
- The underlying rating of the insurance entity is available. Structured Settlements where the underlying annuity is from a company with an S&P rating of A- or better are normally very safe investments.
- The insurance entities typically have large parent companies, with a significant asset base.
- Finally, each state provides a limited guarantee fund to support the obligations of the entities within that state.
The ownership of some Structured Settlements represents a direct investment in an annuity contract. In some states, this provides the sophisticated Purchaser an opportunity to shield assets from creditors since annuities and/or the cash proceeds thereof can be exempt in whole or in part from creditor claims. The laws differ by state, and Purchasers should thoroughly research how this applies to their situation and consult with their own legal counsel.