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THE KEY TOINCOME PLANNING!Secondary Market Annuities
“Learn how income payments from personal injury
judgments or lottery winningscan provide higher
yields and guaranteed payments for a more ‘Stress-Free’ retirement.”
By Steve Lance
www.AskMrAnnuity.com
THE KEY TOINCOMEPLANNING!Secondary Market Annuities
“How income payments from personal injury judgments, or lottery winnings, can provide higher yields and guaranteed payments ensuring a more
“stress free retirement.”
By Steve Lance
Preface
With record low interest rates, there is virtually no
yield in savings accounts for anyone that is adverse to
market risk. Our seniors, retirees, and soon to be retired
are stressed to find safe ways to get interest income on
their savings.
Institutional buyers and hedge funds have long
been the sole beneficiaries of secondary market annuities
from factoring companies including “Get Cash Now” and
“J. G. Wentworth”, as well as others in this industry.
This niche market of secondary market annuities
is now available to individuals seeking safety and higher
yields for income planning. My book will provide insight
to help you with better retirement planning.
Steve Lance
Table of ContentsChapter 1:
What are Secondary Market Annuities or SMA’s?Chapter 2:
What insurance companies or state lotteries make the “guaranteed” payments? How are they rated?
Chapter 3: Why are the current owners selling these income payments?
Chapter 4: Hedge Funds and Institutional Buyers are buying SMA’s. What do they know that we don’t?
Chapter 5: Factoring Companies – Their roll in processing the transfer of payments from seller to buyer
• Contracting the seller• Vetting the sellers award or judgment• Legal process and court filings• Life insurance for insured payments• Closing book completes the transfer• Servicing Companies
Chapter 6: Buying an SMA
• Finding the case that meets your needs• Intent to purchase• Payout options available• Life Contingency• Gap Insurance• What happens if the annuitant is not insurable?
• Taxes and 1099’s Chapter 7:
Qualified funds – self-directed IRA & custodianChapter 8:
Closing the Transaction & getting your payments: check or electronic funds transfer (EFT)
Chapter 9: Advisory Service for lottery winners and owners of a structured settlement
Chapter 10: Case Studies Case Study #1:
Doctor sells practice and wants retirementincome
Case Study#2:Brothers invest for their future retirement
Case Study #3:Grandpa funds college for his 2 grand-daughters
Case Study #4:Jack lost his mom to cancer. Dad helps plan for Jacks future
Chapter 11: Best ways to take retirement Income
• Fixed Indexed Annuities• Ladder Strategy with annuities• Never outliving your money• Income Doubles for Long Term Care
Appendix
Industry perspective by Mark Wahlstrom, Host of the Settlement Channel
“Secondary Market Annuities and the Structured
Settlement Profession”
Chapter One
Chapter OneWhat are Secondary Market Annuities?
Chapter One
– What are Secondary Market Annuities?
Lottery winners who had the good fortune to purchasea winning lottery ticket have an option to take their winningsin a lump sum and pay the taxes or they can elect theoption to take their winnings in annual payments. Thereis a certain security in knowing that you will receive futurepayments on your winnings so for income planningpurposes many winners opt for the annual payout. Inthose cases the state would withhold taxes on the winningsas a payment is made to the winner.
Plaintiffs in a personal injury suit obviously did nothave the good fortune of the lottery winner however in ajudgment awarded by the court, the plaintiff may receivea lump sum compensation for their injuries. They mayalso receive monthly payments as well as future lumpsum payments. Cost of living increases are often tackedon as part of the settlement to insure that their compensationis not eroded because of inflation.
In both instances the lottery winnings and thecourt awarded judgments can create a guaranteed incomestream when payments are received over time. With apresent day valuation these payments are discounted fora lump sum of cash to the current owner and sold toindividual investors.
For example: Doris McKinley was injured in a car accident. In
her settlement against the defendants insurance companyshe was awarded by the court $1250.00 per month for 10years. Her settlement also included a 3% annual cost ofliving increase. Her total compensation over 10 yearswould be $171,958.32.
After receiving monthly payments for 2 years Dorisneeded cash for some much needed home repairs. Doriswas willing to sell the last 5 years of her monthly paymentsto raise the cash needed to fix her home. A settlement company
Chapter One
verifies the court awarded settlement and discounts thefuture cash flow of those payments to determine theamount that could be paid to Doris.
Once that amount is determined and agreed to byall parties the legal process begins. A court date isrequested for a judge to approve the transfer to a newbuyer. The buyer may be a hedge fund, institutional buyeror an investor who wants that income stream for their ownportfolio.
The term ”annuity” in the insurance industry describesfuture payments or obligations to the owner by the insurancecompany. This is the primary annuity market when a directsale is made between the insurance company and thepurchaser.
An existing income stream created by lottery winningstaken over time, a court judgment for damages or even atraditional annuity that is in payout to the current ownercan be packaged and sold to an investor. It is oftendescribed as a secondary market annuity when it is discountedfor a lump sum of cash to the current owner and the right,title and interest to the income stream is transferred to abuyer.
Chapter One
Definition of Terms
• All Amounts are expressed in U.S. Dollars• Credit Rating refers to the credit rating of the insurance company paying the Secondary Market Annuity as determined by Standard & Poor’s (S&P)
• Existing Annuitant refers to a person who sells the payment rights to an annuity in return for a present value, lump sum cash payment rights aspart of a structured settlement of his or her injury claim. This person may also be a lottery prizewinner of the recipient of another kind of annuity; e.g., lottery winner
• Secondary Market Annuity is the name given to these types of investments: payments paid over a fixed term by an insurance company arising from a structured settlement, lottery prize-win-ning payment or another type of annuity.
• Present Value is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risks.
• Structured Settlement is a financial or insurancearrangement in which an individual accepts payments over a period of years to resolve a legal claim that often involves a personal injury.This type of payment plan is often in the form of a structured annuity.
• Term refers to the length of time before all principal and interest are paid.
• Factoring company also referred to as a SettlementCompany refers to companies engaged in the business of processing the sale and purchase ofSecondary Market Annuities between sellers and buyers.
• T-value refers to the software used by factoring companies to calculate the effective yield to investors on the purchase of every Secondary Market Annuity.
Chapter Two
Chapter TwoWhat insurance companies or state lotteries make the“guaranteed” payments on a secondary market annuity?How are they rated?
Chapter Two
- What insurance companies or state lotteriesmake the “guaranteed” payments on a secondarymarket annuity? How are they rated?
Lotteries
Many states have lotteries. The largest lotteries areCalifornia, Texas, Florida, and New York. You can locate ahandbook for lottery winners on the state lottery’s website.In it you will find the FAQ’s and guidelines for winners. Lotterywinners may assign their winnings to a 3rd party as out-lined in the states handbook. California is a good exampleof a state that permits such a transfer - http://www.calottery.com/win/winners-handbook.
Winners may assign all, or any part, of their winningsthus the term “secondary market annuity” was created bythe industry to define this transaction. The assignmentmust comply with state guidelines and be approved by ajudge.
In the larger states lottery’s the payments are“guaranteed”by the claims paying ability of the state’s lotterysystem. Payments may be paid out of the state’s generalfund or in a separate fund for the lottery. You can view thefinancials of the state’s lottery on their website. The lotteryshould have a surplus in their fund to pay liabilities (winners)before any money is paid to the state’s coffers for stateapproved business.
Chapter Two
Lotteries can provide a great service to meet thestate’s revenue needs and at the same provide the financialstrength to provide the guarantee of payments to lotterywinners or the 3rd party if those winnings were assigned.
Some states may assign their obligations for lotterywinners to an insurance company. The insurance companyhas the infrastructure to pay claimants and perhaps the state’slottery does not. If an insurance company has assumed theliability to the state’s lottery winners then the obligation tomake the payments passes to the insurance company. Thestate no longer has that obligation.
Here’s how it works: The state has an obligation topay $5 million to a winner over 20 years. The statepurchases an annuity from an A+ rated insurance companyfor $4.5 million. It then becomes the insurance company’sobligation to pay the lottery winner.
The claims paying ability of the insurance companyis what “guarantees” that the payments will be made.
All consumers should review the ratings of aninsurance company before buying life insurance, carinsurance,home owners insurance, a primary annuity ora secondary market annuity.
The four major firms that rate insurance companiesare:
Fitch (www.fitchratings.com)Moody’s (www.moodys.com)Standard & Poor’s (www.standardpoors.com)andWeis (www.weisratings.com)
An online review of any insurance company willdisclose its rating by one or more of the rating agencies,the amount of surplus the insurance company has inreserve to pay claims, how their investment portfolio isdivided by percentages and any litigation or judgments.
Chapter Two
that could impact its ability to pay claimants. Anothergood indication of an insurance company’s solvency ishow many years it’s been in business.
Insurance Companies primarily own US Treasuriesand investment grade bonds in their portfolio. The interestthat is earned on the bonds is the underlying security forthe insurance company’s ability to provide guarantees toits policyholders. Historically insurance company failureshave been rare because of their conservative bond portfolios.Even rarer is the state guarantee funds don’t cover the policyholder if there is an insurance company failure.
Court Ordered Settlements.
Insurance companies also actively bid for paymentobligations to plaintiffs that are awarded a settlement bythe court. These settlements are called “structuredsettlements” but not all insurance companies do this typeof business. The major companies that bid for court orderedobligations or “structured settlements” are:
• Prudential• Metropolitan Life• Allstate• Mutual of Omaha• John Hancock• Pacific Life• New York Life• Liberty Life / Liberty Mutual
Payment obligations that are awarded to plaintiffsin a personal injury suit are purchased by these majorinsurance companies. The insurance companies areselected for their financial strength, high ratings, and theirclaims paying ability to insure that the plaintiffs willreceive their payments.
A plaintiff often has the right to sell, transfer &assign their payment rights to a 3rd party at any time afterthey receive their settlement. They can sell all or any portion
of their future payments. The transfer of their rights tofuture payments by the insurance company however, mustbe approved by the court and acknowledged by theinsurance company. The court may approve or deny thetransfer of payments based on whether or not it is in thebest interest of the individual awarded the settlement. Ifapproved by the court these sales cannot be reversed.There cannot be a “do over.”
So to briefly recap, injury awarded plaintiffs areoften paid, over time, through annuities issued by major,highly rated insurance companies. If the plaintiff’s needschange they can petition the court to sell all or part oftheir future payments. If granted by the court the plain-tiff forfeits these future payments for a lump sum cashpayout today. These cannot be reversed.
These payments then, when approved by the courtand acknowledged by the insurance company are soldto investors. We refer to these payment obligations as“Secondary Market Annuities.”C
hapter Two
Chapter Two
A+ Insurance Carriers are in this market. Usuallyonly the highest rated insurance companies issue theannuities for lottery winners or personal injury cases.State lotteries and personal injury attorney’s want onlythe financial elite of the insurance industry to securethe annuity obligations. You might say, “Failure to pay isnot an option.”
Moody’s, Fitch, Standard & Poor’s, and Weis rateinsurance companies on multiple criteria including theirinvestment portfolio and their claims paying ability. Theyeach have their own rating system that denotes thestrength and claims paying ability of the insurancecompany. In most instances you can Google the insurancecompany’s website and find their respective ratings or godirect to the rating agency to locate a rating for the company.Comdex www.comdex.com has its own rating system thatlooks at all of the ratings of the other rating agencies, andthen scores the insurance companies on a 100 point scale,100 being the strongest and most financially secure.
Purchasing a secondary market annuity that isbacked by one of these elite insurance companies shouldgive you peace of mind that you will receive all of the incomepayments that you purchased, without interruption.
Chapter Three
Chapter ThreeLottery Winners and Personal Injury award winners:Why are they selling?
Chapter Three
-Lottery Winners and Personal Injury award winners: Why are they selling?
Millions of American’s buy lottery tickets every dayand a few individuals become wealthy when lady lucksmiles upon them. New found wealth is difficult to manage.Most lottery winners are broke within 5 years even aftersubstantial winnings. Those that elect to take their winningsover 20 or 30 years may find that living within their meansis sometimes hard to do. Friends & family congratulateyou on your good fortune and then ask for some of thewinnings to help them in their time of financial crisis. It’shard to say “NO”. You buy a new car or truck, maybe a newhouse and furniture and gift some to those who you wishto help. You discover that you’ve spent this annual installmentand it will be another year before you receive the nextpayment. You’ve maxed out the credit cards and you needcash now. What’s a poor lottery winner to do?
Personal Injury cases are settled every day bylawyers trying to get the best settlements for their clients.Many receive lump sum settlements and or a combinationof lump sums and monthly or annual payments. Somepayments may be structured so the injured party receiveslarger lump sums at specific times like turning 21 or 35 ora lump sum every 5 years for life. There is no specific payoutstructure but the lawyer tries to design a payout that is themost appropriate for his clients future needs. The settlementamount and payout structure for the plaintiff must beapproved by the court. This is therefore called a structuredsettlement. Property and Casualty Insurance companiesissue annuities to the plaintiff to make the structuredsettlement payments approved by the court. The plaintiffas owner of the annuity is then referred to as the annuitant.
The case is settled, the attorneys are paid and theannuitant receives the current and future payments providedby the insurance company and approved by the court.
The Property and Casualty insurance company will makethe prescribed payments direct to the annuitant. Thecourt documents are recorded and the case is closed.Both the Lottery Winner and the Personal Injury recipienthave the same challenges: managing their winnings.When they find that their installment payments are notenough to meet their current needs they look to convertsome of their future payments into cash today. They cansell all or part of their future income stream to meet their cash needs.
A lottery winner who wins $5 Million with paymentsover 20 years can be inundated with requests to loanmoney, invest money, or spend money on homes, cars,jewelry, travel or any number of things to celebrate their goodfortune. How quickly we find that we’ve spent today’smoney & we need to tap into tomorrow’s money. SettlementCompanies will convert all or part of future incomestreams for a lump sum. The annuitant can sell whateverportion of their award or winnings they desire to sell butit has to be approved by the court before they can sell.There’s usually a hedge fund, institutional buyer or aninvestor waiting to buy it.
Fixed rate income payments are annuities paid byinsurance companies or lottery winnings taken in installments.When these income payments are offered for saleC
hapter Three
to investors thru a settlement company they are called Secondary Market Annuities.
Chapter Three
Chapter Four
Chapter FourHedge Funds and Institutional Buyers are buying SMA’s.What do they know that we don’t?
Chapter Four
- Hedge Funds & Institutional Buyers are buyingSMA’s. What do they know that we don’t?
Hedge funds and institutional buyers want higheryields and guaranteed payments. They want to protecttheir principle from market risk and interest rate fluctuations.They like A+ rated insurance companies backing their investments.
This is the same criteria that make secondary marketannuities attractive for individual investors. When SMAguaranteed yields from an A+ rated insurance companyare 1% to 2% or more above current market rates thenhedge funds, institutional buyers and an informed individualinvestor will attempt to buy the limited supply. If you arepatient and work with a reputable brokerage that specializesin SMA’s you’ll be able to add these fixed income annuitiesto your personal portfolio.
Chapter Five
Chapter FiveFactoring Company’s Roll: Converting Income Streamsto Lump Sum Cash Today!
- Factoring Company’s Roll: Converting Income Streamsto Lump Sum Cash Today
Factoring companies also called settlement companiesare in the business to convert future income streams intolump sums to satisfy the needs of the lottery winner or personalinjury recipient. They advertise their services, call and dodirect mail to publicly listed recipients of injury settlements.They send direct mail or call lottery winners who hadelected installment payments to see whether they hadsufficiently mismanaged their income streams and coulduse a lump sum bailout to solve their cash needs. It seemslike it’s inevitable that a lump sum of cash will be neededat some time in the future for our winners because managingmoney is hard to do even with the help of financial advisors.
The conversion process of future income paymentsto a lump sum is relatively simple. How much of your futurepayments do you want to sell? How many payments doyou have and how many do you want to convert to a lumpsum? It doesn’t matter if these are monthly payments,lump sums annually, or future lump sums. They can all bepriced and converted into a lump sum for the seller today.Our lottery winner or personal injury recipient is theowner of an income stream and can transfer that incomestream for a lump sum to a buyer. As the owner they havethe right to sell it.
The factoring company will make an offer to theseller to purchase the income stream. For example if theseller wants to sell 10 years of monthly payments of $500per month that he receives from an insurance companythe factoring company will price this future incomestream and convert it to a lump sum today. They will factorin a price for their services that includes court costs andattorney fees and a profit for their company. When a lumpsum price is agreed to by the seller a purchase and salesagreement is signed by the seller and the factoring company.
With a signed contract in hand between the sellerChapter Five
and the factoring company the process then moves to thenext step.
The factoring company will verify the validity ofthe sellers claim to the income stream that will be offeredfor sale. This will include a letter to the state lottery or theinsurance company to acknowledge the claim is validand has not been previously assigned to another party. AUCC1 search will determine if there are any liens againstthe seller or if there are any court filings, divorce decreesor any judgments against the seller that would cloud thetitle of transfer of the asset. If this due diligence by the factoringcompany proves all is in good order then a filing is madefor a hearing in court in the county with jurisdiction toapprove the transfer.
The Court ProcessThe sale of the income stream must be approved
by the court and deemed to be in the best interest of theseller before the court will approve the transaction. Theseller has to show a need for the lump sum of cash thatthey will receive in the sale. For example the seller mayneed to buy a car to get to work, pay for a medical expense,purchase a home or some other occasion that would benefitthe seller for the lump sum of cash. An attorney for thefactoring company usually represents the seller at thecourt hearing. The attorney and the seller have gone overa prehearing dialogue that should meet the merits of thecourt to approve the transfer.C
hapter Five
The attorney must file motions with the court tohear the transfer request. They must also comply withstate laws regarding such transfers. The case is then placedon the judge’s docket. Dates and times of the hearing areset by the clerk of court. Usually hearings are scheduledwithin 60 days of the formal request.
The seller is required to be present at most hearings.The seller may have his own council or rely on the attorneyhired on behalf of the settlement company to make thepleadings before the court.
The judge can ask for additional information fromcouncil and schedule a rehearing. This will delay the decisionof the court and try the patience of the investor as well asthe seller who is not going to receive his lump sum paymentas anticipated.
In most instances the court will approve the transferif it is deemed to be in the best interest of the seller andthe court has not heard an objection from the insurancecompany.
If the case is denied, the settlement company mayevaluate the denial by the court and reapply at a later timeif there is a possibility of getting it approved. For theinvestor, who was anticipating a closing of the case andtransfer of the asset it is a time of frustration. The investormust now look for a new case to purchase that meets hisneeds.
Lottery winners are less scrutinized by the courtthan personal injury cases simply because of the circumstancesof the award. Usually there isn’t a formal hearing for lotterywinners who wish to transfer their income streams. Transferis permitted by the states rules and regulations governingthe lottery so there is no objection to the transfer. Thejudge will review the documents requesting the transferfor compliance. If the compensation for the seller of thelottery winnings is within the guidelines of the court forthese type of transactions the transfer will be approved.
Chapter Five
Closing Book DocumentsIf the court approves the sale and transfer the factoring
company compiles all the documents from the vetting ofthe case and the court documents into a Closing Book. Itis comprised of compliance documents, stipulations thattransfer ownership from buyer to seller, acknowledgementand acceptance by the insurance company and court ordersapproving the transaction. The factoring company’s attorneyreviews the Closing Book to insure everything is in goodorder and forwards copies to all parties after the court hasapproved the sale and transfer.
A Closing Book may contain some or all of thedocuments listed below:
• Receivable Purchase Agreement• Sale and Assignment Agreement• Change of Beneficiary Designation• Duplicate Annuity Policy or Benefits Letter or Issuer Acknowledgement letter
• Certificate of Marital Status/Spousal, Divorce Decree, or Property Settlement Agreement
• Court Order permitting the assignment of the annuity payments and naming Buyer as new Payee
• Statement of Independent Professional Advice or Waiver, where applicable• Satisfactory Results of Uniform Commercial Code (UCC) (within 30 days of closing), Judgments (within 90 days of closing, Lien (within 90 days of closing, Bankruptcy (within 30 days of closing), and Evidence of Lien Resolution as applicable
• Disclosure Statement• Authorization Letter• Existing Annuitant’s Identification
The factoring company usually advertises througha network of financial advisers to place the case with aninvestor. Most SMA’s are reserved by an investor before thecase goes to court. When this occurs the investor mostC
hapter Five
often has put down a deposit – generally 10% - to reservethe case. The investor’s name goes on the documents thatare presented to the judge. Upon acceptance of the ClosingBook the investor will complete the funding with the factoringcompany for the purchase of the SMA.
Servicing CompaniesIn some instances the factoring company will go
through the court process even if an investor has not beenfound to make the purchase. When this occurs the courtdocuments will reflect ownership to be in the name of thefactoring company, account number xxxx at Security Titleor Allied Servicing or some other servicing entity used bythe factoring company. When a buyer is found to purchasethe case the factoring company will give the buyer anirrevocable assignment of that account number with theservicing company. This can be a more expeditiousprocess as the case is already court approved and it canbe closed in short order. Many investors grow impatientwith the uncertainty of the court process so they opt for acase that can be irrevocably assigned and servicing is pre-paid by the factoring company. The servicing companiesare licensed, bonded, and insured to make the paymentsto the investor. Additionally all years of servicing are pre-paid by the factoring company.
The income stream and future lump sum paymentsthat the factoring company agrees to purchase from thelottery winner or personal injury recipient are priced usuallywith an above market yield to attract an investor. Mostsecondary market annuities in the past have been sold toinstitutional investors who wanted guaranteed yields andguaranteed payments for their portfolio. These are thesame requirements for millions of conservative Americansavers who typically buy certificate of deposits or havemoney in money market accounts. Savers who don’t wantthe risks of the stock market and can’t afford stock marketlosses can now purchase secondary market annuities.
Chapter Five
Chapter Six
Chapter SixBuying an SMA!
- Buying an SMA
A recent client enthusiastically proclaimed at ourlunch meeting that he was ecstatic over purchasing a 15year secondary market annuity with monthly paymentsfrom Met Life with a yield of 5.5%. “Who wouldn’t want aguaranteed rate of return and guaranteed monthly paymentsfrom MET LIFE!”
That sums up the sentiment of buyers of secondarymarket annuities. Everyone is in search of a higher rate ofreturn and safety for their money. There are few placesavailable to savers that provide both high rates of returnand safety of principle. If you find an investment with ahigher rate of return you invariably take on more risk.
Seniors especially have been starving on the minisculereturns from savings accounts, money market accountsand CD’s. Many are dipping into their principle to meetexpenses while receiving little or no interest on their savings.That process certainly fuels the fear of running out ofmoney in retirement.
Often seniors abandon their no risk mantra forhigher yield investments. A phoenix investment firmcalled Mortgages LTD raised money from investors andsubsequently loaned the money to developers of commercialand residential properties. Mortgages LTD had providedabove average returns to investors for years. Small saversand retirees chasing an 8% or higher rate of return doledout small amounts to invest but it usually represented alarge portion of their savings. When the housing marketcrashed and Mortgages LTD filed for bankruptcy most allinvestor’s money was lost.
My radio show broadcast often states emphaticallya message to listeners that building wealth is not only thereturn on their money. It is the return of your money. Whatgood is it to get 8% - 12% yields, if at that end of the day youcan’t get your money back? A bankrupt Mortgages LTDC
hapter Six
made investors smile as dividends were being paid. Thatcertainly was not the case when the company becameinsolvent.
Pick up the Wall Street Journal to read about thelatest company bankruptcy, fraud, or insider trading scamwhere investors lost money and you’ll realize that it happensmore often than you think. The biggest ones like Enron,Washington Mutual, Lehman Brothers, Bernie Maddoff,Steven Cohen, Raj Rajaratnam, and others get the bigheadlines but the small ones like Mortgages LTD attractthe small investors. The results are the same. Investors bigand small lost their money. And unfortunately the employeesof these big companies that had their 401k retirementaccount invested in the company stock also lost money.
Again, it is not just the return on your money It is the return of your money!
You should always ask yourself the question, “WillI be able to get my money back?” If you don’t ask yourselfthat question, or you just assume that you will get yourmoney back then you are deluding yourself. More dotcomstart- ups failed than succeeded yet investors chasing yieldand catching the golden ring for a successful IPO pumpedmillions of dollars into dotcoms that had no earnings andwere illiquid because they weren’t publically traded. Didanyone ask the question “Will I be able to get my moneyback?” Probably not, but our capability to believe that theC
hapter Six
investment will be successful and the company has aningenious business model that will make us unbelievablerich distorts our objectivity. The odds are against you. Inmost cases you’re be better off going to Las Vegas.
I can save you a great deal of angst, frustration,worry, self-doubt, and perhaps a marriage, home foreclosure,and in some extreme cases keep you from committing suicide.It all comes down to losing money because you took toomuch risk and in many cases you failed to ask the question“Will I be able to get my money back.”
Only insurance companies with superior ratingsare selected to make long term payment obligations to lotterywinners or in personal injury cases. Insurance companieslike Prudential, Met Life, Allstate, Metropolitan, Pacific Lifeand others are chosen because of the claims paying ability,their ratings, their conservative investment portfolio ofinvestment grade bonds and US Treasuries, and their statusas leaders in the insurance industry. Insurance companiesare publically regulated by each state. This adds anotherlayer of safety for the consumer.
It may not be sexy or exciting to make an investmentwith an insurance company giving you a fixed rate ofreturn when you could be placing a bet on a dotcomstartup, real estate investment trust, land speculator, oreven some mutual funds but there’s almost 100% certaintythat you’ll get all of your money back with interest. There’sC
hapter Six
a lot to be said about peace of mind and even more to besaid about avoiding investment risk pitfalls. Rememberthe mantra “It’s not only the return on my money but moreimportantly it’s the return of my money”. Amen.
Finding a case that meets your needs
There are a large variety of cases that regularlycome on the market. But remember these are individualcases with individual sellers. In other words there’s onlyone case with a unique type of payout so making a decisionto purchase it should be a rather brief process. Evaluatethe insurance company. Evaluate the payments that arebeing offered and the rate of return. If the offering meetsyour needs then you should decide quickly to reserve thecase. If you hesitate someone else could reserve it andyour opportunity is lost.
The factoring company will prepare “An Intent toPurchase Agreement” for your signature. This is your contractto purchase the case offered by the factoring company. Itwill list the buyer and the seller, the insurance companyor lottery making the payments, the effective yield and listthe payments that will be transferred. It will also state thatthe sale and transfer is contingent on court approval andthe buyer’s approval of the transfer documents.
Here are some of the structured payouts that youwill find available for purchase:
Monthly payouts are the most popular
People can use their 401K or IRA accounts to purchasesecondary market annuities with above market yields andreceive scheduled income payments for retirement. Mostpurchasers are approaching retirement and this is a prudentoption. Monthly payouts with some lump sums rolled inare also popular.
Chapter Six
The regular monthly payment is great for retirementplanning but then every 5 years or so there’s an additionallump sum payout. It’s a little surge of good fortune thatyou may have even forgotten and it arrives to pay for adream vacation or purchase a new car.
Lump Sum Only payout
Many investors are just looking for yield. They wantall of their money in a lump sum or several lump sumsover time and they don’t need a monthly income. Investorslook for this type of payout. The personal injury settlementmay have provided monthly income to the claimant andsome periodic lump sums. The settlement company canstructure the sale of just the lump sums or just the monthlypayments or a combination of both.
Future monthly payments and/or future lump sum payments
If retirement is a ways off or you are retired and youwant to provide income in the future for a child or grand-child secondary market annuities can be an ideal choice.Some SMA’s begin payments in 10 or 15 years and may lastfor an additional 10 or 15 years. That income stream maybe perfect for your future retirement plan or provide collegefunding for a grandchild or a stable income for anotherfamily member who can’t seem to manage their money.
Cost of Living Allowance (COLA)
Cost of Living increases are another attractive pay-out feature a personal injury attorney might try to includein their client’s settlement. A 2% or 3% cost of livingincrease is not unusual in a structured settlement so purchasingpower remains fairly constant and is not eroded over timedue to inflation.
When the owner elects to sell some or all of theirpayments the COLA passes on to the new purchaser. TheC
hapter Six
COLA is calculated into the effective yield when you purchasea secondary market annuity. But as the payment amountthat you receive increases you feel like you’re getting morefor your money.
Secondary market annuities are offered in count-less variations. They provide liquidity for the seller andan opportunity for the buyer to meet retirement goals andincome needs with fixed term payouts and fixed yields.
Life Contingency
Some structured settlements may be payments forthe life of the injured party. The insurance company willmake payments to the annuitant as long as he or she isalive. Payments will cease at their death. This creates anotherchallenge for the factoring company.
When the factoring company enters into a purchasecontract with an annuitant who wants to sell all or a portionof their life contingent income stream they apply for a lifeinsurance policy. In the event that the annuitant dies thelife insurance will pay a death benefit. The death benefitis collaterally assigned to the investor who purchases thelife contingent income stream. The amount of the deathbenefit will equal the total investment less any moneyreceived by the investor.
When there is life insurance issued on the life ofthe annuitant and collaterally assigned to protect theinvestor the payments are referred to as inured paymentsor hedged. Usually these SMA’s pay a higher interest ratebecause the income stream is not guaranteed. If the annuitantdies the payments stop. If the investor has not received allof the scheduled payments that were purchased the lifeinsurance pays the outstanding balance on the contract.If the investor selected this SMA for income planning andthe annuitant died the investor would be paid off but thenthey are back to the drawing board to select a new SMAto replace the lost income. To make life contingent SMA’sC
hapter Six
more attractive the effective yield is usually higher thanSMA’s with fixed rate guaranteed payments.
The life insurance premium is paid by the factoringcompany when the policy is issued. This is a single premiumpayment that covers the life of the policy. The investordoes not have to worry that future premium payments willbe due and go unpaid. The policy is paid in full. Theinvestor will be named on the collateral assignment issuedby the insurance company. This assignment will be partof the closing book.
The insurance company that issues the life insurancepolicy on the annuitant is not the same insurance companythat has the obligation to make the annuity payments. Forexample if Metlife is making the annuity payments the factoringcompany will apply for life insurance with Transamericaor some other A+ rated insurance company for the deathbenefit.
Sample Illustration:
Investment: $133,418.60Guaranteed Yield 5.13%120 monthly payments of $1,250
from 8/15/2015 thru 7/16/20253% annual cost of living increaseTotal Receive: $171,958.3202-2055147 Guaranteed Payments
Compound Period: MonthlyEffective Annual Rate: 5.13%
CASH FLOW DATA
Event Date Amount Number Period End DatePurchase 7/16/2015 133,418.60 1 Payment 8/16/2015 1,250.00 120 Monthly 7/16/2025
% Change 3.00%# Per Level 12C
hapter Six
AMORTIZATION SCHEDULE - Normal Amortization
# Date Payment Interest/Principal BalancePurchase 7/16/2015 133,418.60
1 8/16/2015 1,250.00 556.85 693.15 132,725.452 9/16/2015 1,250.00 553.95 696.05 132,029.403 10/16/2015 1,250.00 551.05 698.95 131,330.454 11/16/2015 1,250.00 548.13 701.87 130,628.585 12/16/2015 1,250.00 545.2 704.87 129,923.78
2015 Totals 6,250.00 2,755.18 3,494.82
6 1/16/2016 1,250.00 542.26 707.74 129,216.047 2/16/2016 1,250.00 539.31 710.69 128,505.358 3/16/2016 1,250.00 536.34 713.66 127,791.699 4/16/2016 1,250.00 533.36 716.64 127,075.0510 5/16/2016 1,250.00 530.37 719.63 126,355.4211 6/16/2016 1,250.00 527.37 722.63 125,632.7912 7/16/2016 1,250.00 524.35 725.65 124,907.1413 8/16/2016 1,287.50 521.32 766.18 124,140.9614 9/16/2016 1,287.50 518.12 769.38 123,371.5815 10/16/2016 1,287.50 514.91 772.59 122,598.9916 11/16/2016 1,287.50 511.69 775.81 121,823.1817 12/16/2016 1,287.50 508.45 779.05 121,044.13
2016 Totals 15,187.50 6,307.85 8,879.65
18 1/16/2017 1,287.50 505.2 782.30 120,261.8319 2/16/2017 1,287.50 501.93 785.57 119,476.2620 3/16/2017 1,287.50 498.66 788.84 118,687.4221 4/16/2017 1,287.50 495.36 792.14 117,895.2822 5/16/2017 1,287.50 492.06 795.44 117,099.8423 6/16/2017 1,287.50 488.74 798.76 116,301.0824 7/16/2017 1,287.50 485.4 802.10 115,498.9825 8/16/2017 1,326.13 482.06 844.07 114,654.9126 9/16/2017 1,326.13 478.53 847.60 113,807.3127 10/16/2017 1,326.13 475 851.13 112,956.1828 11/16/2017 1,326.13 471.44 854.69 112,101.4929 12/16/2017 1,326.13 467.88 858.25 111,243.24
2017 Totals 15,643.15 5,842.26 9,800.89
Chapter Six
30 1/16/2018 1,326.13 464.29 861.84 110,381.4031 2/16/2018 1,326.13 460.7 865.43 109,515.9732 3/16/2018 1,326.13 457.08 869.05 108,646.9233 4/16/2018 1,326.13 453.46 872.67 107,774.2534 5/16/2018 1,326.13 449.82 876.31 106,897.9435 6/16/2018 1,326.13 446.16 879.97 106,017.9736 7/16/2018 1,326.13 442.49 883.64 105,134.3337 8/16/2018 1,365.91 438.8 927.11 104,207.2238 9/16/2018 1,365.91 434.93 930.98 103,276.2439 10/16/2018 1,365.91 431.04 934.87 102,341.3740 11/16/2018 1,365.91 427.14 938.77 101,402.6041 12/16/2018 1,365.91 423.22 942.69 100,459.91
2018 Totals 16,112.46 5,329.13 10,783.33
42 1/16/2019 1,365.91 419.29 946.62 99,513.2943 2/16/2019 1,365.91 415.34 950.57 98,562.7244 3/16/2019 1,365.91 411.37 954.54 97,608.18 45 4/16/2019 1,365.91 407.39 958.52 96,649.6646 5/16/2019 1,365.91 403.38 962.53 95,687.1347 6/16/2019 1,365.91 399.37 966.54 94,720.5948 7/16/2019 1,365.91 395.33 970.58 93,750.0149 8/16/2019 1,406.89 391.28 1,015.61 92,734.4050 9/16/2019 1,406.89 387.04 1,019.85 91,714.5551 10/16/2019 1,406.89 382.79 1,024.10 90,690.4552 11/16/2019 1,406.89 378.51 1,028.38 89,662.0753 12/16/2019 1,406.89 374.22 1,032.67 88,629.40
2019 Totals 16,595.82 4,765.31 11,830.51
54 1/16/2020 1,406.89 369.91 1,036.98 87,592.4255 2/16/2020 1,406.89 365.58 1,041.31 86,551.1156 3/16/2020 1,406.89 361.24 1,045.65 85,505.4657 4/16/2020 1,406.89 356.87 1,050.02 84,455.4458 5/16/2020 1,406.89 352.49 1,054.40 83,401.0459 6/16/2020 1,406.89 348.09 1,058.80 82,342.2460 7/16/2020 1,406.89 343.67 1,063.22 81,279.0261 8/16/2020 1,449.09 339.23 1,109.86 80,169.1662 9/16/2020 1,449.09 334.6 1,114.49 79,054.6763 10/16/2020 1,449.09 329.95 1,119.14 77,935.5364 11/16/2020 1,449.09 325.28 1,123.81 76,811.7265 12/16/2020 1,449.09 320.59 1,128.50 75,683.22
2020 Totals 17,093.68 4,147.50 12,946.18Chapter Six
66 1/16/2021 1,449.09 315.88 1,133.21 74,550.0167 2/16/2021 1,449.09 311.15 1,137.94 73,412.0768 3/16/2021 1,449.09 306.4 1,142.69 72,269.3869 4/16/2021 1,449.09 301.63 1,147.46 71,121.9270 5/16/2021 1,449.09 296.84 1,152.25 69,969.6771 6/16/2021 1,449.09 292.03 1,157.06 68,812.6172 7/16/2021 1,449.09 287.2 1,161.89 67,650.7273 8/16/2021 1,492.57 282.35 1,210.22 66,440.5074 9/16/2021 1,492.57 277.3 1,215.27 65,225.2375 10/16/2021 1,492.57 272.23 1,220.34 64,004.8976 11/16/2021 1,492.57 267.14 1,225.43 62,779.4677 12/16/2021 1,492.57 262.02 1,230.55 61,548.91
2021 Totals 17,606.48 3,472.17 14,134.31
78 1/16/2022 1,492.57 256.89 1,235.68 60,313.2379 2/16/2022 1,492.57 251.73 1,240.84 59,072.3980 3/16/2022 1,492.57 246.55 1,246.02 57,826.3781 4/16/2022 1,492.57 241.35 1,251.22 56,575.1582 5/16/2022 1,492.57 236.13 1,256.44 55,318.7183 6/16/2022 1,492.57 230.88 1,261.69 54,057.0284 7/16/2022 1,492.57 225.62 1,266.95 52,790.0785 8/16/2022 1,537.34 220.33 1,317.01 51,473.0686 9/16/2022 1,537.34 214.83 1,322.51 50,150.5587 10/16/2022 1,537.34 209.31 1,328.03 48,822.5288 11/16/2022 1,537.34 203.77 1,333.57 47,488.9589 12/16/2022 1,537.34 198.2 1,339.14 46,149.81
2022 Totals 18,134.69 2,735.59 15,399.10
90 1/16/2023 1,537.34 192.61 1,344.73 44,805.0891 2/16/2023 1,537.34 187 1,350.34 43,454.7492 3/16/2023 1,537.34 181.37 1,355.97 42,098.7793 4/16/2023 1,537.34 175.71 1,361.63 40,737.1494 5/16/2023 1,537.34 170.02 1,367.32 39,369.8295 6/16/2023 1,537.34 164.32 1,373.02 37,996.8096 7/16/2023 1,537.34 158.59 1,378.75 36,618.0597 8/16/2023 1,583.46 152.83 1,430.63 35,187.4298 9/16/2023 1,583.46 146.86 1,436.60 33,750.8299 10/16/2023 1,583.46 140.87 1,442.59 32,308.23100 11/16/2023 1,583.46 134.84 1,448.62 30,859.61101 12/16/2023 1,583.46 128.8 1,454.66 29,404.95
2023 Totals 18,678.68 1,933.82 16,744.86Chapter Six
102 1/16/2024 1,583.46 122.73 1,460.73 27,944.22103 2/16/2024 1,583.46 116.63 1,466.83 26,477.39104 3/16/2024 1,583.46 110.51 1,472.95 25,004.44105 4/16/2024 1,583.46 104.36 1,479.10 23,525.34106 5/16/2024 1,583.46 98.19 1,485.27 22,040.07107 6/16/2024 1,583.46 91.99 1,491.47 20,548.60108 7/16/2024 1,583.46 85.76 1,497.70 19,050.90109 8/16/2024 1,630.97 79.51 1,551.46 17,499.44110 9/16/2024 1,630.97 73.04 1,557.93 15,941.51111 10/16/2024 1,630.97 66.53 1,564.44 14,377.07112 11/16/2024 1,630.97 60.01 1,570.96 12,806.11113 12/16/2024 1,630.97 53.45 1,577.52 11,228.59
2024 Totals 19,239.07 1,062.71 18,176.36
114 1/16/2025 1,630.97 46.86 1,584.11 9,644.48115 2/16/2025 1,630.97 40.25 1,590.72 8,053.76116 3/16/2025 1,630.97 33.61 1,597.36 6,456.40117 4/16/2025 1,630.97 26.95 1,604.02 4,852.38118 5/16/2025 1,630.97 20.25 1,610.72 3,241.66119 6/16/2025 1,630.97 13.53 1,617.44 1,624.22120 7/16/2025 1,630.97 6.75 1,624.22 -0-
2025 Totals 11,416.79 188.2 11,228.59
Payment Interest PrincipalGrand Totals 171,958.32 38,539.72 133,418.60
Last interest amount decreased by 0.03 due to rounding.
Chapter Six
If the previous illustration was life contingent andthe seller died on January 10, 2021 the balance paid to theinvestor would be $75,683.22. This amount paid as a lumpsum appears in the “balance” column after the last paymentwas paid on 12/16/2020.
Grand Totals show the total payments of principaland interest.
Life Contingent SMA’s often pay a little higher interestrate than one’s that are not life contingent. The reason issimple. If you purchase an SMA with guaranteed paymentsfor 20 years you know that you’ll receive 20 years of payments.That’s what you want for your portfolio.
If you purchase an SMA that is life contingent andthe owner dies after 10 years you receive a lump sum paymentfrom the death benefit on the life policy. You then have togo shopping to purchase another SMA that provides theincome that you were originally seeking.
Gap Insurance
Most life insurance policies have a two-yearcontestability provision that says that “if the insuredcommits suicide” then no death benefit will be paid. Inthe unlikely event that the annuitant takes their own lifeafter they’ve sold their life contingent annuity the investorloses not only the income stream that he’s purchased butalso his total investment.
The settlement company will often purchase GapInsurance from a company like Lloyds of London. If theannuitant does commit suicide the life insurance policywill pay the investor the outstanding balance at time ofdeath.
What happens if the annuitant is not insurable?
Occasionally the annuitant will be uninsurable.Chapter Six
The income stream can still be sold. It will be offered forsale to investors but un-hedged meaning without life insuranceto pay the investor if the annuitant dies. It will be life contingentwithout life insurance. The effective yield will beconsiderably higher because of the inherent risk that theannuitant will die before the investor receives any or allof their money.
Institutional buyers also invest in un-hedged SMA’s.They can purchase a large portfolio of un-hedged secondarymarket annuities with a high yield. Statistically most willpay out and be profitable. A few un-hedged SMA’s will notbe profitable because of an early death of the annuitantbut the average will provide an above market effectiveyield for the institutional buyer.
An un-hedged SMA is not appropriate for someonewho is doing income planning and we do not recommendtheir purchase.
Will I receive a 1099 on this investment interest?
If you purchase a secondary market annuity youwill receive payments that will be both principle and interest.You are making an investment in an income stream at afixed rate of return. You will receive an amortizationschedule for your investment. It will be your obligation toC
hapter Six
report your earned interest on your personal tax return. Inmost cases the insurance company will not send you a1099 if the secondary market annuity that you purchasedwas from a personal injury case.
A structured settlement is not a taxable event in apersonal injury case. The plaintiff won a judgment for aninjury and the income from that judgment is not taxable.Most insurance companies that are in the structuredsettlement business do not change the status of the annuityand issue 1099’s if the original annuitant transfers his rightsto an investor. Nor will the insurance company do taxwithholdings on an investor purchased SMA.
State Lotteries however are required by law to with-hold 25% for federal income taxes and some states alsowithhold for state taxes. Lottery winnings are fully taxableto whoever is receiving the payments. 1099’s are issued tothe recipient of the payments.
An investor most often does not live in the statewhere the state lottery board is withholding for taxes. Ifyou do not live in the state and the state withholds for statetaxes you would need to request a refund on those with-holdings. You would also receive a federal refund if yourtax obligation did not meet the amount of withholdingsmade on the lottery payments.
Chapter Six
Chapter Seven
Chapter SevenQualified Funds: Self-directed IRA and a Custodian.
- Qualified Funds: Self-directed IRA and a Custodian.
You can use IRA or 401k money to purchase asecondarymarket annuity. This pre-tax money or commonlycalled “Qualified” money because it’s in a tax shelteredretirement account must be transferred to a custodian thatwill purchase the SMA on your behalf. Most brokeragefirms or banks will not act as a custodian for this transaction.Brokerage firms and banks only act as a custodian forproducts, funds or services which they offer.
Settlement companies use independent trusts ortrust firms as custodians for pre-tax money to facilitate thesale of secondary market annuities. These custodianscharge a fee for maintaining the account and transactionfees to distribute funds to the account owner. You canexpect to pay $250 to $400 per year to maintain an accountwith a custodian as well as pay $8 - $10 per transactionfee. Custodians are only required when the buyer is usingpre-tax money. If you did not use a custodian and youpurchased a secondary market annuity with pre-taxmoney it would create a taxable event on 100% of the purchaseprice. That’s not a particularly good investment strategy.
Post-tax money commonly called non-qualifiedmoney are funds that are outside of an IRS tax qualifiedretirement plan. You’ve already paid tax on these funds soyou can use them to purchase a secondary market annuityin your own name. You do not need a custodian. You canreceive the payments direct from the insurance companyand claim the earned interest on your annual tax return.The portion of the payment that is return of your investedprinciple is not taxable.
Chapter Seven
Chapter Eight
Chapter EightClosing the Transaction
- Closing the Transaction
The sale of future payments from a personal injuryrecipient or a lottery winner must be approved by thecourt. The court reviews the documents prepared by thesettlement company attorney to complete the transactionas well as the suitability of the transaction. Is the sale ofthe future payments in the best interest of the seller? Is theseller receiving a fair and reasonable price for the futurepayments? Has the insurance company agreed to transferthe future income payments from the current recipient tothe new purchaser? Are the necessary state compliancedocuments prepared and in good order?
The settlement company hires an attorney in thestate where the recipient resides to prepare the closingdocuments and petition the court to set a date for thehearing. Some states are expedient and set hearing dateswithout delay and some states as in a recent case in NewYork took several months to hear a case. At the conclusionof the court process the investor will have court approveddocuments attesting to the validity of the sale.
Settlement companies may look for a purchaser ofthe income stream before a hearing date is set. Theywould rather have an investor willing to close the transactionin advance if possible. Settlement companies often havea line of credit to take ownership of the income streamsthemselves if required. If they do not have an investor atthe time of the closing the settlement company will “ware-house” the annuity with their line of credit. Title is then inthe settlement company’s name and they can transfer therights, title and interest to an investor in the future. Theyprefer however to have an investor pool of financial plannerswith clients who are interested in the high yields andguaranteed income streams of secondary market annuities.
The vast majority of the cases heard by the courtare approved at a single hearing. Some cases require asecond hearing if the court finds that there is a suitabilityC
hapter Eight
issue for the seller or compliance issue with the documen-tation or additional information needed for the court toapprove the case. Some cases do not get approved butthis is the exception. Sellers must provide legitimate reasonsfor requesting the sale and show how the sale is in theirbest interest. Some sellers have failed to meet this requirement.Since the court wants to honor the wishes of the seller ifpossible a future hearing date might be set so as to moreclearly state.
The closing documents are recorded and copiesare made for the seller, the insurance company, and thebuyer. The case then proceeds to funding whereby theseller upon satisfactory review of the closing book willwire the balance of the funds to the settlement company.The buyer is effectively the new owner of the incomestream that was approved by the court and accepted byall parties.
Getting your payments: Check or electronic funds transfer(EFT)
If you use qualified money the insurance companywill make the payments to your custodian. The custodianthen will distribute funds to you upon request. When youreceive funds from the custodian it is a distribution fromyour retirement account and will constitute a taxableevent. As long as the funds remain with the custodian theyC
hapter Eight
are not taxable. Only when you take a distribution do thefunds become taxable. The custodian can wire funds, maila check, or EFT the money into your account.
Most insurance companies still mail paper checks.The companies earn interest on the “float” while the checkis in the mail or waits to be deposited by the recipient.Although making bank deposits are easier with the use ofonline banking or ATM machines it is still a time requiredprocess. Having the payments direct deposited into youraccount is certainly easier. If you were purchasing asecondarymarket annuity with 120 or more monthly paymentsand you didn’t want to face that ongoing exercise ofdepositing checks there is an alternative. You could usea title company. This is similar to the fiduciary relationshipof the trust custodian for pre-tax qualified money butmuch less expensive. For about $45 per year a title com-pany will receive the checks from the insurance company,deposit the checks in the trust account and then EFTfunds direct to your bank.
Chapter Eight
Chapter Nine
Chapter NineCase Studies
Case Studies
Case Study #1 – Doctor sells practice and wants retirement income
At age 55 a local physician wanted to sell her practice& travel. She approached a financial planner who suggestedsecondary market annuities as a way to get above marketrates of return and payments guaranteed by insurancecompanies like Met Life, NY Life and Prudential.
The retiring doctor was looking for $10,000 permonth with income lasting 20-25 years. Over 4-5 monthswe were able to ladder 5 different SMA’s with immediateincome payouts that approximated the doctors incomeneeds. Effective yields were in the range of 5%- 5.5% andtwo of the SMA’s had annual cost of living increases thatwould give the doctor more income in the future. The doctorinvested about $1 million. Ownership of the SMA’s was titledin the doctors living trust. In the event of doctor’s death theliving trust would continue to receive the payments as out-lined in the court order. The living trust then would distributefunds to any beneficiary named in the trust.
Case Study #2 – Brother’s invest in their future
Getting your payments: Check or electronic funds transfer (EFT)
A financial advisor in Ohio had two sons. One was37 and stationed in Honolulu with the US Navy. The otherson age 41 was working for a fortune 500 firm in Chicago.Both sons had about $60,000 in savings. Dad recommendedthat with current volatility in the stock market and hisconservative Ohio savings perspective that both sonsshould consider a secondary market annuity.
Dad had sold traditional fixed annuities and life insurancefor A+ rated insurance companies for over 25 years. AC
hapter Nine
secondarymarket annuity with some of those same companieswith an above market effective yield was a great incomestrategy for his sons as they approached retirement.
Yields on SMA’s can be in the 6.0% - 7.0% rangewhen the income payments are deferred for 10 years orlonger. Both sons were able to secure an SMA with pay-ments starting in about 20 years with effective yields of6.5%
Case Study #3 – Grandpa funds college for his 2 granddaughters
Parents and grandfather of 8 months old Melanieand 4 year old Charlotte are contributing money to a 529college plan for the girls. Grandpa Dave had purchased severalsecondary market annuities to give him a supplement incomestream to his pension and social security. He bought oneSMA with guaranteed payments by Allstate and another byMetlife.
A new SMA became available from Genworth Lifeand Annuity Company. A $42,000 investment would generate184 monthly payments of $300 per month with an effectiveyield of 5%. Payments would start in 60 days.
A tax free investment strategy used by many financialadvisors is the purchase of life insurance. Some recommendwhole life insurance policies that pay dividends to buildcash value. But with the advent of universal life and fixedindexed universal life more financial advisors turn to thoseproducts for enhanced growth potential. Stock brokers stillpromote variable life insurance but conservative investorsare shying away from the higher risks & rewards.
Grandpa Dave decided on a fixed indexed universallife policy for each of the girls. Cost of insurance is very lowbecause of the girls ages and preferred health class rating.The 15 years of payments from the Genworth SMA wouldput $150 per month into each girls life insurance policy. TheC
hapter Nine
cash value on each girl’s life insurance policy would growto about $40,000 when the last payment was made fromGenworth. Grandpa Dave had converted his $42,000investment into life insurance coverage and cash valuesthat could be used for college or a down payment on a 1sthome for the girls or even their future retirement incomeneeds. All distributions made on a tax free basis whentaken as loans against the policies cash value.
Grandpa Dave set his granddaughters on firm financialfooting and provided a legacy for himself.
Case Study #4 -Jack at age 1 lost his mom to cancer. Dad helps plan forJack’s future.
Jack has been receiving social security paymentsfor the past 7 years because he lost his mom to cancershortly after he was born. The money has been going into atrust account for Jack with the money managed by his father.
Jack’s mom had life insurance so his college will bepaid for and any of Jack’s living expenses are covered. Thesocial security payments have just been accumulating in asavings account earning virtually no interest. Jack’s dad isvery conservative and won’t venture into the stock marketbecause of the risk. He was also looking for an above yieldwith virtually no risk.
Chapter Nine
The solution for Jack’s dad was a secondary marketannuity with a life contingency. The SMA would make 240monthly payments to Jack of $1000 per month beginningin 25 years. The effective yield was 7%. The payments wereguaranteed by Metlife. The total payout to Jack is $240,000and the cost to purchase the SMA was a meager $38,000tapped from his savings account at the bank that earnsvirtually no interest.
Life contingency means that there is a life insurancepolicy issued on the life on the current annuity owner. Ifthey die before all payments are paid by Metlife to Jack thena life insurance policy issued by another insurance companywill pay Jack any outstanding balance in a lump sum.Jack’s effective yield is still going to be 7% whether he hasstarted to receive payments or whether he’s not receivedhis first payment. It’s like having a belt and suspenders onthe investment. He has double protection on his money.
Chapter Nine
Chapter Ten
Chapter TenAdvisory Services for Lottery Winners, Personal InjuryRecipients or investors in Secondary Market Annuities.
- Advisory Services for Lottery Winners, Personal InjuryRecipients or investors in Secondary Market Annuities.
Whether you wish to sell your annuity or you wishto purchase an annuity in the secondary market it is advisableto have knowledgeable counsel. Check the credentialsand the experience of the firm before you begin.
Most states require an independent investment advisorconsult with someone who is considering the sale of theirsettlement. The advisors role is to fully inform the selleron the financial aspects of the sale of their income stream.It will then be the seller’s decision to go forward with thesale or not. The independent investment advisor providesan added level of protection for the seller.
If you are investing in a secondary market annuitybecome familiar with the documents in the closing book.These are the documents that transfer ownership to you.Read and understand the intent to purchase and fundingrequirements to close your transaction. An experiencedfirm will keep you informed of the court process and providefull disclosure throughout the transaction.
Chapter Ten
Chapter Eleven
Chapter ElevenBest Way to Take Retirement Income.
Best Way to Take Retirement Income
Financial planners usually advise clients who areapproaching retirement to put a larger percentage of theirportfolio into fixed income investments and reduce therisk and investment in equities. For a good rule of thumbsimply subtract your age from a 100. If you’re 60 years oldconsider placing 60% in conservative fixed income investmentswhile the remaining 40% might remain in mutual funds orother investment to potentially capture a higher yield.Draw funds from your portfolio at a conservative rate of4% - 5% and your money should last until you take yourlast breath.
In a perfect world that calculation is a workablestrategy however since the dotcom implosion in 2001 andthe financial crash of 2009 that decimated millions ofAmerican savings and retirement funds it is quite apparentthat we don’t live in a perfect world. If you were anywherenear retirement or you were in retirement during thosecatastrophic financial events I’m sure you had many sleeplessnights if the financial advice that you received was to “staythe course”. Many investors just got out of the market andtried to save what they had left.
The question is how do you protect yourself fromthe calamity of the stock market and take retirement incomewith confidence?
I can give you the quick answer for those sitting onthe edge of their seats in anticipation of hearing a cosmicrevelation: No market risk investments! Now that wasn’tso difficult. It’s really not an investment at all it’s a savingsprogram.
People that are approaching retirement or in retirementshould be in a savings program to protect from thosecatastrophic events. Insurance companies have weatheredthe financial storm with their conservative investmentsstrategies and provide solutions to consumers looking forsafety.
Chapter Eleven
Insurance companies have offered fixed annuitiesas the backbone of retirement plans for years. Theyweren’t particularly sexy but they provided a fixed rate ofreturn and a guarantee that you would get all of yourmoney back with interest. Now there’s a good investmentconcept!
Yesterday at our regular Saturday men’s club golfouting Peter approached me with a stock tip. He askedme if I knew anything about Iraqi Drachma currency. Heknew that I was a financial planner and co-hosted the AskMr. Annuity Radio show. I told him that I didn’t know any-thing about the Iraqi currency. He said that he has coffeewith his neighbor who is pretty sharp on investments andhe said the currency has to go up in value. Peter shouldbuy now! I told Peter to buy only what he could afford tolose. It’s more important to get a return of your moneythan the return on your money. So I asked Peter, ”How doyou actually buy Iraqi Dinar’s anyway?” He said there’s acompany out of Las Vegas that purchases the currency foryou. You must pay with a cashier’s check. As I teed up myball to hit off of the first tee I thought to myself. If therewas ever a message from above about the riskiness of aninvestment it was that the company selling the investmentwas from the gambling capital of the world and you mustpay with a cashier’s check!
It’s easy for me to get off track with so called“investment stories”. There seems to be an endless supplyof stories and an endless number of victims who lostmoney on “investment opportunities”.
With a savings program that gives you a guaranteedrate of return you simply adjust your percentage of distributionand it’s easy to calculate the big question: How long willmy money last? For example if you have a 3% guaranteedrate of return and you withdraw 7% your money will last23 years. If you start your withdrawals at age 65 then yourmoney will run out at age 88. You can adjust yourwithdrawal percentage down if you want to extend thelife of your income stream.
Chapter Eleven
The dilemma has always been the investmentdoesn’t guarantee the rate of return. The investor wantsto earn more, maximize his return and in the process heexposes himself to market risk. Since 2001 retirees andsavers alike have looked for guaranteed returns to avoidthe market crashes in 2001 and 2009. If you lose 50% ofyour money with a market “Correction” and you’re stillwithdrawing 5% or 6% per year in retirement you’ll run outof money before you know it. To avoid the stress of the ordealand the uncertainty of when the market is going to correctagain insurance companies have some guaranteed programsthat will help you withdraw your money safely, withoutrisk to market fluctuations, and with the income for lifefeature provide income that you and your spouse cannotoutlive.
Secondary Market Annuities provide that fixed rateof return and fixed term payout that can be used forretirement income planning. But traditional annuities canbe coupled with SMA’s to provide additional liquidity aswell as other living benefits. We’ll explore those annuitiesand benefits.
Fixed Indexed Annuities
In 1996 insurance companies began to offer a newhybrid annuity. This annuity provides a guaranteed rate of
Chapter Eleven
return. It also gives you an opportunity to share in marketgains without the risk of market losses. This was a totallynew concept. Millions of Americans who were risk adversebegan to move money from variable annuities and mutualfunds. But unfortunately many more stayed with marketinvestments during the two twin market crashes of 2001 &2009. When the pressure of double digit losses became toointense they sold, many at the bottom of the market. Somenever recovered.
If you don’t get smarter as you get older you justget older. We’ve become more cautious from our pastexperiences with market losses and subsequently fixedIndexed annuities have had record sales.
Fixed indexed annuities are simply fixed annuitiesthat give you an opportunity to earn enhanced interestcredit if a market index like the S & P 500 or Dow JonesIndustrial Average shows positive gains. Your money isnever directly invested in the market. The insurance companybuys in US Treasuries and investment grade bonds to ensurethat you will not only get a return on your money but areturn of your money. All insurance companies must providea minimum interest rate guarantee.
The insurance company also buys call options onthe market index. If the market index is positive then youare rewarded with a portion of the interest gained fromthe call options. If the market is negative then no interest iscredited but your principle and previously credited interestis protected.
Tax Deferred Growth is one of the features of atraditionalannuity. There is great power for wealth accumulationusing tax deferral. You don’t have to pay taxes on yourmoney until you start taking income. Ladder Strategy Using Annuities
You can use the commonly used ladder strategy to“ladder” income using annuities. Your retirement savingsC
hapter Eleven
are divided into 4 annuities; not proportionately but inamounts designed to return to you in 15 years the fullamount of the initial savings. You’re projected to have100% of what you started with plus 15 years of income.The first rung of the ladder is an immediate annuity thatprovides fixed income over the first 5 years.
The second rung is a fixed indexed annuity thatgrows tax deferred for 5 years and then pays out fixed incomefor 5 years.
The third rung is a fixed indexed annuity that growstax deferred for 10 years and then pays out fixed income for5 years.
The fourth rung of the ladder is a fixed indexed annuitythat has grown tax deferred for 15 years. Using a conser-vative rate of growth and the protection of principle featurethis fixed indexed annuity has grown back to your originalretirement savings amount plus you’ve received 15 yearsof income.
Our parents retired using the mandate to “neverinvade the principle”. They lived off of the interest of theirsavings. But the interest was fully taxable. With the ladderstrategy you are receiving part interest and part return ofprinciple so you are taxed less.
Chapter Eleven
Never Outliving Your Money?
Insurance companies give you a retirement optionto purchase an annuity and then annuitize it for a guaranteedlifetime payout. You could even include a spouse to receivethe lifetime payout as well.
Often it was guaranteed for life or 10 yearswhichever was longer. But if you died after 10 years thebalance of the account was retained by the insurancecompany. Annuitization is still an option for an annuitywith an insurance company but the new income ridersare my preferred method of taking income.
An Income rider is an optional benefit for a fee ona fixed indexed annuity. The fee is usually around 1% ofthe account balance. The insurance company will giveyou an illustration before you even take out the policy. Theillustration will have your deposit, plus the growth in theincome account and finally what your monthly payoutwill be at some point in the future.
Your account balance will continue to earn interestwhile you are taking income however unlike annuitizationthe balance remaining in your account when you die goesto your beneficiary. You will receive lifetime income soeven if you live long enough to deplete the account balanceyour lifetime income will continue.
Income Doubles if needed for Long-Term Care
Many new fixed indexed annuities are addressingseniors concerns about long term care. The Optional IncomeRiders on fixed indexed annuities may include a featurethat doubles your income in retirement if you can’t perform2 of 6 activities of daily living. If you were receiving $2000per month from your fixed indexed annuity and you becomecognitively impaired or were unable to perform 2 of the 6ADL’s then your income would double to $4000 permonth. This benefit is usually guaranteed to continue forC
hapter Eleven
5 years but will vary by insurance company. After 5 yearsyour payment would revert back to the original $2000 permonth if still living.
Activities of Daily Living include:• Bathing- ability to wash oneself• Dressing- the ability to put on and remove all clothing
• Eating- the ability to feed oneself
• Transferring – The ability to move from bed to chair
• Continence – maintain control of bowel and bladder
• Toileting – the ability to travel to and from the bathroom
Chapter Eleven
Appendix
Appendix
Appendix:
The Emerging Use of Secondary Market Annuities and theStructured Settlement Profession
Contributed By Mark Wahlstrom
The decade long battle against secondary markets and structured settlement liquidity
There has been a long running tug and pullbetween the primary market structured settlement professionand what has emerged to be called the secondary marketor providers of liquidity represented by factoring and cashflow purchasing firms. In the early days in which the secondarypurchasing market was small, fragmented and onlyoccasionally purchased the cash flow of a structured settlementbeneficiary, there was little organized opposition by thelife insurance companies or NSSTA* ( National StructuredSettlement Trade Association ) to the practice. In fact theyeven allowed one of the early pioneers in the industry,Settlement Capital, Dallas, TX, to be a member of theorganization in recognition of the role they played inassisting beneficiaries who were struggling to obtainliquidity on structured settlements that no longer fit theirfinancial or planning situation.
However, as the market for secondary cash flowsexpanded in the mid 1990’s we saw a decision by NSSTAand its legal counsel to work actively to squash the liquiditymarket under the guise of it potentially causing Congressto pull or revise the provision in the IRC section 104 andIRC Section 130 in which all payments from a structuredsettlement are paid to the beneficiary income tax free.While there may have been some intellectual or legalreasoning behind it, the association made it their singlelargest priority from a lobbying and tax planning stand-point and worked actively to discourage its member lifecompanies, assignment companies and settlement brokersfrom encouraging any claimant from exercising their rightto sell or transfer payments to another party.
Appendix
These battles were fought on both the nationallevel and state level and resulted in the secondary & liquiditymarket companies forming their own trade association,NASP, the National Association of Settlement Purchasers,to advocate for the rights of structured settlement beneficiariesto sell their payments in an orderly and productive manner.Without going into the entire legislative and lobbying history,this resulted in model legislation presented as a compromisebetween the two associations entitled the StructuredSettlement Protection Act and of which at the publicationof this book 47 states currently have one enacted on theirstate books. These laws spell out the rights of those lookingto sell, transfer and otherwise give up the right to some orall of their payments and when coupled with a new sectionof the IRC 5831 which clearly provides the tax law basisallowing for the transfer of payments from one party tothe next, you have for the first time a strong legal and taxlaw foundation that gives an orderly process to the rightsof those who transfer as well as to those who purchasethose transfers.
You would think this would be the end of the battlebetween the primary structured settlement profession andthe settlement purchasers, but you would be mistaken asNSSTA has for reasons only known to its legal counsel andleadership continued for years to discourage the processof allowing annuitants to sell their payment streamsdespite evidence that only 8% to 10% of all annuitantsmight ever actually use that option at any point in the timetheir contract was paying out. The impact of this continuedresistance is that most if not all structured settlementexperts continue to actively avoid having anything to dowith the secondary market, either through counselingcurrent beneficiaries on the best way to transfer paymentsand solve their financial issues, or as this book is makingclear, to use the secondary annuity products to fund othercash flows or investments. This lack of support by the primarymarkets and primary structured settlement brokers,coupled with a great deal of misinformation, has had theeffect of causing confusion regarding what can be doneA
ppendix
with these financial instruments and what the actualrisk, if any, might be to those who advocate their use ina settlement planning scenario.
Why does the settlement trade association fight so hardagainst liquidity on structured settlements?
As discussed in the prior section, there continuesto be a battle between the primary market association,NSSTA and the secondary market association, NASP as tothe rights of claimants and annuitants to sell or transfertheir payments in return for a lump sum. You would thinkthat model legislation for each state plus additions to theIRC would be sufficient to end this ongoing battle howeveras noted, it continues on despite the fact that the secondarymarkets are now firmly established and have a large bodyof case law behind them.
While many, including myself, have speculated asto the true nature of the concern being one that isentrenched in the need of the national trade associationneeding a disaster scenario to lobby against, and as suchraise money to fund their lobby, I believe there are seriouspeople in the primary markets who do believe that “toomuch” liquidity raises the questions in the minds of Congressas to why the tax exemption for payments is needed at allif everyone seems so anxious to sell their payment rights.
The answer to this is that for over 30 years IRC Sections104 and 130 have been in the code and have supportedwhat is now a firmly entrenched process by which badlyinjured, impaired, widowed and orphaned claimants areable to obtain tax free income for life in a way that insurestheir money will not run out and cannot be outlived inmost instances. Structured settlements and the governmentpolicy behind them are based on rock solid principals,have worked for decades and by almost every measureare revenue neutral to the US Treasury and as such wouldbe one of the least likely programs to be swept aside in aA
ppendix
tax reform scenario. However, the concern that thisCOULD happen is real on that side of the argument so theboogie man of the secondary market is trotted out annu-ally so as to keep the lobbying for the exemption in placeand the association viable in Washington DC.
The unfortunate fallout of this concern is thatneedless fears and misinformation of the process continuesto be circulated by members of the association who feelthat all requests for liquidity are wrong and that claimantsshould never factor, sell or transfer their payment rightsunder any circumstance. Further, the association will typicallyremove any member’s rights if they actively participate inthe secondary market transfer process or as is now occurring,using secondary market annuity products to fund alternativeinvestment, savings and settlement planning vehicles. Plannersand purchasers of these secondary annuities need to beaware of the thought process behind the negative presson secondary annuities, that most of the lobbying isdirected by the primary markets and that the concernsbeing raised are a replay of the same battles fought 20years ago regarding the right to transfer payments backthen.
Misinformation and just generally lazy intellectualthinking, as well as pressure by a trade association on itsmembers has kept the primary market experts largely outof this rapidly expanding market. However that is slowlychanging as a number of innovators in settlement planningpartner with secondary market brokers and providers touse them in new funding programs.
The emergence of secondary market annuities as a fundingsource for settlement planners
Since 2012 there has been several secondary marketbrokers and providers who have begun to partner with set-tlement planners to use these bundled cash flows to financeguaranteed income programs in several innovative ways.
The first is using them inside of a trust as a guaranteedAppendix
cash flow stream for settlement trusts, special needs trusts,Medicare set aside trusts and other programs where safe,highly secure guaranteed cash flow is valued. Since thespread during most of this time frame on the yield betweena “Standard primary market” annuity and a “SecondaryMarket” annuity of similar durations can often be between25% to 40% more on the secondary annuity, you can seethe obvious attraction in using them to fund programswhere cash flow is of greater value than tax free cash flowprovided by the primary market contract.
The second option is using them as a supplementto a primary tax free structured settlement planning option.This is where you would pair up the secondary market tofund short to medium term certain payments such as care-giver expenses, home mortgage costs, rehab treatments orother deductible medical expenses. The thinking is usingtaxable income from the higher yielding secondary marketcash flow to pay for items which have the ability to begenerally deducted from taxes as an expense. Then theremainder of a settlement is used to purchase a primarytax free structured settlement for lifetime income, collegepayments and other lump sums in which there is likely tobe no tax deductible offset, or which would allow the injuryvictim to obtain a substandard underwriting status due toimpaired life expectancy and receive an enhance yield asa result, something not possible in purchasing of secondarymarkets.
The third option we are seeing is their use whenpaired with a fixed index annuity with the funds againsplit between the two strategic objectives. In this case thesecondary cash flow is again used for immediate andintermediate cash flow needs and to fund those costs andliving expenses which require the highest possible currentcash flow and yield. The balance is typically invested in afixed index annuity and allowed to accumulate to a futuredate when the secondary market annuity either expires oris no longer sufficient to cover the claimants costs, atwhich time this floating rate tax deferred annuity is con-A
ppendix
verted into an income to address the next stage of theclaimant's life and deal with their planning needs as well.
These are the three most common scenarios inwhich secondary market annuity products are used in asettlement planning model, but it is anticipated as moreproduct become available that there will be expandeduse of the product in non-qualified annuity programs suchas taxable damage settlements, structured legal fees oreven structured sales of capital assets.
Issues settlement planners and brokers face in promotingthe use of secondary market annuities
The primary issues faced by settlement plannersand others looking to promote the use of secondary marketannuity contracts are typically those tied to the relativenewness of the concept, compliance and E&O coverageissues, as well as the misinformation campaign discussedin the prior sections.
Compliance and E&O coverage for the risk of errors,omissions, process mistakes and suitability for the clientyou are selling to is probably the single largest area of concernfor the professional looking to expand their use of secondarymarket annuity products. At the time of this publication Iam unaware of any professional liability contract thatexplicitly covers the agent, broker or professional marketingsecondary market products to their clients. As such youwill typically see a great deal of hold harmless or qualifiedinvestor type language in just about any marketing, sale orpurchase agreement involving these when dealing with asettlement professional. Hold harmless language andqualified investor limits are of course no guarantee to anyagent, broker or expert that there will not be issues withthe client at some future point in time so it is essential thatthere be a very careful documented understanding by theclient as to whether or not this activity is covered underyour professional liability coverage. A
ppendix
Additionally, many advisors, settlement plannersand brokers work with or through general agents, RIA’s,IMO’s and structured settlement marketing organizationsthat each has their own unique compliance and approvedproduct lists that producers can market to their clients.Each organization has its own areas and operations whichmay or may not be supervised or under the control of theSEC, FINRA, state insurance commissions or state securitiesregulators, with all of the attendant rules and regulationsrelated to being licensed to sell insurance, annuities,investments, registered products or provide investmentadvice. Each broker and agent needs to determine withtheir associated business partners and business entitywhat if any supervisory jurisdiction applies to their use ofthese products in any of the planning scenarios I have out-lined in this chapter. This is a constantly evolving area oflaw and regulation and the broker and agent MUST beconstantly vigilant to make sure they are approved to sellthese products both by their organization but also by theagencies which supervise the business activities of thosefirms.
In summary disclosure and suitability standardsmust be exceptionally high for a new product such as thisand it is essential that the planner carefully explain to theclient what level of supervision and compliance is providedby your firm as to the integrity of the deal you are presentingto them. It is for their safety and wellbeing as well as yourown. Given that the secondary market annuity world currentlyfalls into a gray area of non-regulatory supervision it is prudentof any adviser to treat the transaction in the same fashion& using the same standards of suitability and compliancethey would exercise in any other financial transaction.
What risk planners need to understand in marketing secondary annuities
The primary risk for settlement planners and primarymarket brokers in the use of secondary market annuitiesrevolves primarily around the unclear regulatory and supervisoryA
ppendix
environment created by this new brand of funding agree-ments. While it is clear these are not “products” in the traditionalplanning and marketing sense we associate with that termand that they are funding agreements and private transactionsbetween parties, it still is entirely possible that confusing sales ormarketing literature can trip up even the most carefulplanners.
Further, the selection of who you use as your brokerin a secondary market arrangement is also vitally importantas the level of experience in handling transfers & transactionsvaries greatly from firm to firm. It is highly recommendedby the authors that any broker, planner or expert engageor have access to an attorney who is an expert in the areaof cash flow transfers and is thoroughly familiar with thelaws in each state as well as the legal transfer process bywhich the right to receive payments is documents uponexecution of the deal. If I were to provide any one cautionit is that brokers and planners have solid counsel to vetdeals and transactions so as to insure the proper chain ofcustody of the payments, necessary documents, recordsand court orders to insure that all payment rights are asrepresented by the broker BEFORE closing any deal.
This might strike some as an unnecessary expenseor potentially a deal killer for some clients but it is the adviceof this author that until there is a standardize market andprocess that all deals be reviewed and cleared by independentcounsel so as to avoid any issues down the road whichmight delay, impede or eliminate payment streams for aclient. Experienced counsel in this area can be obtainedby contacting NASP or looking online for firms withexpertise in annuity transfer law or cash flow transfertransactions.
The future of secondary markets in the structuredsettlement and settlement planning professions
The future of secondary market annuities in thestructured settlement and settlement planning professionsA
ppendix
is still to be determined as much of the current objectionsto the process are subject to considerable misinformationby the primary market trade association and its lobbyingarm. However, in the current low interest rate environmentwhere there is an almost unlimited desire by pension funds,retirees, injury victims and others for secure, stable, guaranteedcash flows at higher than market yields, the demand forthese cash flow programs will continue uninterrupted absenta regulatory or market issue that restricts their sales anduse.
The biggest threats at the moment to the sale anduse of secondary market products continues to be the hostilityof the primary markets toward their use as a competing orcomplementary planning tool as well as the downwardpressure on yields brought on by the large number of buyerslooking to secure these cash flows. These combined factorscan bring about greater regulatory scrutiny in one caseand also sharply lower yields on the limited supply ofinventory in the other. There is little the planner can doabout either risk at the moment, so the best course ofaction is educate yourself on the process, work with anexperienced broker, have access to a lawyer that can vettransactions and document your sale process as carefullyand completely as you would any other transaction.
Appendix
ABOUT THE AUTHOR
STEVEN L. LANCEAnnuities & Pension Expert
Steve Lance has been teaching stock brokers,financial planners and insurance agents thebasics and advanced designs of annuities forover 15 years. They call him with their clientsprofile and ask "What do you suggest."
After getting a plethora of informationabout their clients ages, health, work history andretirement plans, kids and grandkids, debts,dreams, wants and needs, a plan emerges to helpthem "Navigate the Financial Storm." The peoplethat we help never lose their money. My recom-mendations aren't bonds or bond funds. The planis not a myriad of stocks or equities based oncharts or graphs. It is not a “bet on gold or silveror pork belly's or grain futures.” Nor is it based upona projection of the Euro, dollar, yen or ruble.
It's simple. It's safe. It grows. It gives back aslong as you live and as long as your spouse lives.Plus, you can even leave some for the kids. It'san annuity.
www.AskMrAnnuity.com