Secondary market payments are one of the best kept secrets you can offer your clients. If you aren’t familiar with them you may be wondering how they can be so great. Here’s a short course on some of the features that make them an attractive alternative for savings and retirement planning.
For more than 30 years, advisors and agents have looked to me for safe-money opportunities for their clients. From my vantage point in life brokerage, I have seen annuity and life insurance products evolve as economic trends, both national and global, affect consumers’ finances. Today we see low interest rates continuing beyond anyone’s expectations, unemployment rising as the number of jobs contracts, and our nation’s place in the world shifting. Political and economic uncertainty and low guaranteed rates of return worry retirement-minded clients, as they should.
One of the most exciting developments has taken place in the last five years, and this is the introduction of secondary market annuities to the retail marketplace.
Secondary market payments had previously been sold to hedge funds and securitized on Wall Street, but they were not available to the retail market in any organized way. As a product with guaranteed rates of 4-7 percent to the purchaser, we saw an opportunity for a specialized alternative for savings and income planning.
Secondary market annuities are a stream of income purchased at a discount from the original recipient of a structured settlement. Structured settlements are created when the plaintiff in a lawsuit or lottery winner agrees to a financial award, ordered by a court of law, which establishes one or more annuities to provide payments, monthly or lump sum, on an agreed-upon timetable.
Over time these well-planned awards may not meet the changing needs of the recipient. When he or she needs cash now – to remodel a home, pay tuition, or get married or divorced – they can apply to the court for permission to sell some portion of the award. These recipients take discounted prices now for the income streams they will forego later. Through a court-mandated transfer, purchasers get higher rates than they could with regular annuities, bonds, or certificates of deposit.
Safe Money Solution
Secondary market payments are great for “safe money” savings for several reasons. The payments, already with a higher effective yield, are guaranteed by the creditworthiness of the insurance company and top carriers are often used for this purpose. Pursuant to the tax code, the money for a structured settlement is pre-reserved and in many cases the liability insurer that resolved the claim acts as a guarantor, so in essence two insurance companies are backing up the annuity. Currently there is about $800 million of this product available for sale each year. About $500 million is taken off the market by one or two large purchasers, leaving the balance for this retail market.
Structured settlement annuities make a good source for secondary market payments because they allow different payment configurations from a classic single premium immediate annuity. In the latter, you can’t defer the payments beyond one year, but in court-directed structured settlements longer delays are often done. You can have lump sums out in the future and payments that increase every year. And they tend to be placed with quality companies.
There aren’t unlimited choices; you have to choose from existing, defined payment streams. However, there are many choices in length of time, monthly payments, or lump sums coming near-term or farther out.
An example might be a case with a $100,000 lump sum payment from New York Life Insurance Company in ten years that can be purchased today for $64,000. Another example could be a payment stream of monthly income that lasts for 10, 15, or even 30 years. (For a complete list of the most current secondary market annuities, please visit www.sevenpercentreturn.com.) Secondary market annuities work well for middle class prospects age 55 and older.
Many deals are available with deferred as well as immediate payments and this makes them suitable for putting in IRAs or defined benefit plans. Guaranteed rates and set payments are prime advantages of secondary market annuities, but it’s important to remember they don’t offer flexibility. There are no partial withdrawals or surrenders, no additions to the contract, and no annuitization.
Trust is Paramount
As with any financial product or advisory relationship, trust is paramount. First, payouts are transferred by court order, making the title transfer extremely secure. Secondary market payments are intangibles, so it’s important to know the people you are dealing with. If there’s any risk at all, it’s in the transaction, which must be done properly. Our buyers are protected by a tight process. We take the credit risk of the insurance company and the transactional risk very seriously. We screen the previous owner, making sure there are no bankruptcies or liens that cloud the title. We work with highly specialized counsel, who are familiar with state and federal statutes.
Often there can be pressure from buyers, sellers, and agents to complete a transaction quickly, but what’s most important is to complete all due diligence. Experience has taught us that many cases require changes, clarifications, amendments, and legal searches. Shopping for the best rate by a tenth of a point or rushing to a closing isn’t a good idea.
As you can see, secondary market payments are one of the best kept secrets available today. They are unique in offering above market returns coupled with safety and security. Agent compensation is attractive. You can learn more about them and decide which might be most appropriate for your clients by visiting www.sevenpercentreturn.com.
I’ve been working with annuities for 30 years and it’s exciting to have secondary market payments come into the marketplace to augment traditional annuities and to provide a “safe money” alternative. Secondary market annuities aren’t for every client or every agent, but they can help many people achieve their financial goals.
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John Bulbrook, Bulbrook Drislane – IN-FORCE ™ Secondary Market, Finance and Investments, Secondary Market, Annuities, Fixed Term Annuities, Life Insurance, Structured Settlements, Previously Owned Annuities, Pre Owned Annuities, Immediate Annuities, Factored Structured, Settlement Secondary Market Annuity, Aftermarket annuity, Inforce fixed term annuities, Inforce fixed term annuity, Inforce annuity, Deferred Variable Annuity, Inherited Annuity, Equity Annuities, Straight Life Annuity, Non Qualified Annuity, Mutual Fund Settlement, 20 Year Annuity, 10 Year Annuity, 5 Year Annuity – Click here for his Facebook,Twitter, LinkedIn, Google Plus