Information about Secondary Market Annuities- high yield, safe annuities

How Safe is the Secondary Market for Annuities?

The question of safety of the Secondary Market is one  we receive frequently, especially after sending out a list of currently available offers that pique reader interest.

Quite simply, we like  structured settlement secondary annuities  because  they offer the highest yield and highest level of safety available to consumers for retirement income purposes.  They are not the simplest  transactions for buyer or agents to complete, and they are not appropriate for all situations.  For example, for older investors,  other types of annuities may have more benefits in flexibility or longevity protection.  However as planning tools with excellent  yield and safety, they simply can’t be beat.

Be sure to reference our post on the difference between Structured Settlement Annuities  and viatical (life insurance) transactions

 So now that you know why we like them in general, the question remains, is this market for real and how safe is it?

Secondary market annuities can more specifically be called structured settlements in technical terms. A structured settlement originates when an individual wins a settlement- this can be a car accident, medical malpractice, or any other sort of award.

The settlement essentially takes the same form as an annuity contract that is available to anyone who invests retirement assets with an insurance company- it’s a promise by a highly rated carrier to make a series of future payments to the individual.

In this case, rather than an individual buying those future promised with a premium (AKA an annuity), in a settlement, the losing party in the case settles their obligation by transferring a sum of money to satisfy those future payments. The sum is transferred to an insurance company who then shoulders the future market risk and court-ordered obligation to make specific payments. The winning party- usually an individual- enjoys this income stream tax-free per IRS regulations.

However, circumstances change for people, and sometimes they wish to sell their future payments for a lump sum. This is where our ”Secondary Market Annuities” originate.

Because of this slight difference in origination of funds in the settlement, there is one critical difference that separates primary market from secondary market annuities. In addition I’ll add two other reasons that will show clearly why the secondary market is a much SAFER investment.

Safety Factor #1

An insurance company becomes party to a structured settlement as part of a final court order in a lawsuit. In the unlikely event that this specific insurance company fails in the future, an existing court order compelling the company to make payments would place that liability among the company’s most senior debt obligations. And that means it gets paid out ahead of all other company liabilities. The insolvent insurance company would be held in contempt of court for failing to make payments according to the terms of a structure settlement. The stream of income provided to you via the secondary market annuity would not be affected nor have to wait for further bankruptcy or liquidation proceedings.

Safety Factor #2

And now for the somewhat less critical but also quite relevant…

Each state has an insurance guaranty fund that covers the guarantees of insurance policies and annuities for insolvent insurance companies who can’t make payments. Let’s assume your state guaranty fund covers $100,000 for annuities but you need to invest quite a bit more money to cover your retirement income needs. Within the primary market, no matter what you decide to invest, you may only be covered to the maximum limit of $100,000.

By using the secondary market, you are subject to the guaranty limits of the state where the contract was initially issued, not necessarily your state of residence. Structuring an income portfolio in the secondary market typically requires multiple deals to complete. It is quite probable that each contract will have originated in a different state, which affords you the total protection of all states involved rather than simply the limits offered in your current state of residency.

Safety Factor #3:

The risks in an SMA are generally transactional in nature- meaning, it has a risk of not closing due to the seller changing their mind or the court not approving the transfer. In both of these cases, there is no financial consequence to you if the case fails, and your deposit is fully refunded.  This happens in about 1 in 10 cases where generally a court disallows the seller from selling due to the seller’s personal situation.

Other risks in an improperly handled SMA transaction are that a payment stream could be already committed or not transferable. Our process eliminates that risk as our outside counsel reviews and will not release purchase funds until a thorough checklist is complete.

Thus the three key items that ensure legal safety are:

  1. Benefits letter from the issuer to the payee, which establishes that the Payee has the payments to sell,
  2. Court order changing the payee to you,
  3. Acknowledgement letter or stipulation agreement after the court hearing from the Issuer naming you as the new payee of the specific payment stream you purchased.

Not surprisingly, these three key pieces are what must be in place before your funds are released to a factoring company and seller, and are what constitute our closing book after a transaction is complete.

Safety Factor #4:

And finally we’re going to talk about a safeguard that is inherent to any sound retirement income plan. Any advisor worth their salt will advise you to spread your assets between several different insurance companies. While this is a great recommendation, it rarely happens because most salesmen are lazy and benefits can vary greatly between carriers to the point where it puts you at a financial disadvantage.

Because a typical case involves multiple Secondary Market Annuities, purchasing contracts in the secondary market virtually assures that you will place assets in several companies with no sacrifice to average yield or overall performance.

Summary:

A retirement income portfolio based on secondary market annuities thus offers unparalleled safety of 1) credit quality, 2) seniority status among the issuing company obligations, 3) rock solid legal review, and 4) diversity of carriers.

If you’d like to explore this profitable yet extremely safe opportunity for your retirement income plans, we’re ready for your call.

Annuity Straight Talk

1-800-438-5121

Calculating Yields in the Secondary Market

Nearly every time we send out an email with new secondary market annuity offers, several inquiries come back with people asking how the return is calculated.

The first resource is one from the vault- a piece we wrote several years ago that is just as accurate today- Which 10% Do you Want?

For more, let’s see an example that everyone can relate to…

Assume a purchase price of $282,951 where monthly income payments of $1500 begin one month from today and continue for 360 months. The effective annual yield is 5% and aggregate cash flow comes to $540,000.

Everyone has seen this similar loan and repayment amortization schedule with a conventional mortgage. With a mortgage you would be the borrower but with a Secondary Market Annuity you are essentially the lender.

The payments outlined above can be a good example of a 30 year mortgage or it could be an excellent income stream from the secondary market. Either would be calculated exactly the same way.

With Secondary Market Annuities many people want to assume that the $282,951 is simply growing at 5% for 30 years, but this is not the case, just as it is not the case with the amortizing mortgage either. Why is this? When money is paid out, the compounding asset balance shrinks.

Every payment on an amortizing mortgage is part interest and part principal, and Secondary Market Annuities are no different- each payment includes an interest earned component, plus a return of principal component.  We won’t bore you with an extensive amortization table here outlining 360 payments- if you really want it, just ask and we’ll send it over!

Alternative  Way of Looking at Secondary Market Annuities Yields:

There is another simple way to look at it so let’s have another example. Assume you placed $282,951 in a savings account earning 5% effective annual interest (unlikely, I know). If you were to withdraw $1500 per month, after 360 months you would have collected $540,000 and the account would be empty. While you are in fact earning 5% interest, you are not earning interest once the money comes out of the account.

The calculations for these returns are slightly more complicated than a simple (money ‘times’ interest rate ‘times’ time) formula. If that were the case, $282,951 growing at 5% for 30 years would compound to $1,222,886 which isn’t the case here. Money at work in the account earns interest while money in your pocket does not.

Secondary Market Annuities Yield Summary

These examples indicate that not all income deals in the secondary market are appropriate unless the structure meets specific objectives for your retirement plan. Immediate income works for some people and deferred income or future lump sum payments work for others. Which one is best for you? You must answer that question.

There are several ways to capitalize on the secondary market. What we have are above average interest rates and extremely high levels of safety, and a variety of available cash flows. The rate and safety are a compelling proposition in any economy and especially true now. The only thing to determine is what you are seeking, and then match your goal with an available offer.

To maximize the strength of this market, use the right tool for the job- don’t buy an income stream if you have no need for the payments. Instead, let it defer and accrue a few years! Likewise, don’t buy a 10 year deferral annuity if you need money every month.

Please don’t hesitate to call us if there are any specific questions you have about how the secondary market for annuities works, and for assistance selecting the right offers for your specific situation.

You can always view our available Secondary Market Annuities here, or give us a call or make an appointment to help setting your goals and matching appropriate tools for the job-

Have a great week!

Bryan J. Anderson
800.438.5121
[email protected]

Secondary Market Annuities Are Not Viaticals

At Annuity Straight Talk we encourage you to learn all you can about annuities so you can independently verify what we recommend, or what any advisor you chose to work with presents you for consideration. As many know, we often recommend Secondary Market Annuities as a very high credit quality alternative for investors seeking a yield above market for comparable safety.

Recently, a reader who inquired about Secondary Market Annuities did some research and wrote back,

Brian,

We just wanted to let you know that we are not interested at this time to purchase any SMA’s, after reading several articles about insurance company’s being able to opt out of these contracts in app. 35 states.

Thank you so much for your time.

As it’s easy to get turned around in the World Wide Web, we thought it would be beneficial for all to read our response:

The article referenced is here. It may require a registration to that site, but the registration is free.  If you don’t wish to register and want the article, Contact us and we’ll email you a copy.
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20100228/REG/302289992

Our response to the reader is as follows:

The article you referenced points to the proliferation of a ‘secondary market for annuities’ which is actually unrelated to the contracts I promote on my website. It is confusing, however, due to the similar name both transactions share.

In fact, the contracts I promote are more properly labeled ‘resale of structured settlements’ and come in the form of a payment stream (an annuity) from an insurance company.

We call them “Secondary Market Annuities” because they are annuity payment streams being bought on the secondary market. Unfortunately, regular annuities being re-sold would share the same title, and therein lies the confusion.

Secondary market annuities as mentioned in the article have to do with investors buying an annuity in the name of someone else. Why would someone do this? Because certain annuity contracts have death benefits attached to them.

Take for instance a variable annuity with a death benefit. If the owner dies when the market is depressed, a death benefit of the original investment amount plus interest will be paid to the beneficiaries.

Now, the problem with this sort of transaction is that groups of wealthy investors and attorneys got together and solicited terminally ill people. The investors purchased annuities with a death benefit while naming themselves beneficiary and a terminally ill individual the owner. It offered a risk-free way to invest in the market by leaving the insurance company on the hook for a death benefit.

The problem is that it went contrary to the spirit of offering protection for people saving for retirement while trying to protect family members. It falls in the same category of transaction as ‘stranger oriented life insurance’ and other viatical transactions.

Many regulators felt that investors were taking advantage of terminally ill people and the result was a series of laws that allowed insurance companies to cancel certain benefits if contracts were transferred. I personally believe that was the right thing to do. Contractual guarantees are put in place for very good reason and I feel any effort to exploit that should be stopped.

But comparing those “stranger originated transactions” to the structured settlements we promote at Annuity Straight Talk is like comparing apples to oranges, as they say.

The transfer of the Secondary Market Annuities we sell- more properly labeled ‘resale of structured settlements’- is regulated by an act of Congress in 2001 that produced HR 2884 and is found in Internal Revenue Code 5891. As of 2008, all but a small handful of states enacted laws governing transfers to mirror the federal statute.

In summary, the legislation and tax guidance cited states that a structured settlement may be resold and that if it follows a proscribed process involving the Court in the state where the original settlement originated, that the transfer of payments would retain its tax treatment and not be subject to a penalty taxation.

As a result, each of the transactions we promote has a Court date wherein the transaction needs to be reviewed and approved. Court orders must be in place and all documents reviewed and approved prior to funding.

The transfers we promote receive a substantial amount of due diligence from our legal counsel for your benefit and ours. As such they offer the highest levels of safety and retirement income efficiency. Each case is treated with exhaustive care and the result is the greatest amount of benefit for our clients, all firmly within the confines of state and federal laws.

It’s critical to perform due diligence and this article (cited above) is important if you are considering the purchase of a stranger-oriented life insurance policy or an annuity contract on the secondary market with a death benefit attached to another party’s life. But it’s equally important to understand the differences between that marketplace and the structured settlement market.

We hope this discussion and links are useful to our readers. We welcome any additional thoughts or questions- simply email us or leave a comment below.

** You may also wish to reference this post with more detailed information on the safety of Secondary Market Annuities.

Secondary Market Annuities In Corporate Finance

The secondary market for annuities is traditionally the secret domain of large corporations. With annual distribution of around $700 million it is one of the smaller financial offerings available. A recent press release offers a glimpse of how financial institutions use these secondary deals to profit using companies like korrisoft.com for support. The other major benefit of a very bad loans with loans4u, is that the lender may report the borrower’s payment history to credit reporting agencies. This may help the borrower build a better credit rating when payments are made on time. Loan shoppers should confirm a lender reports to credit bureaus in order to ensure they enjoy this benefit.

If you have very bad credit loan, then the bank can run after the guarantor. Of course, you can’t find someone to do this unless you are very close with that person. It can also wreck your relationship if you are unable to fulfill your obligations.

 
This press release talks about how J.G. Wentworth, one of the biggest players in the industry, just completed a securitization of $265 Million of structured settlements. Wentworth buys various financial instruments like settlements, annuities, and financial obligations through aggressive direct-to-consumer advertising, offering cash now for future payments. You may have heard their catchy radio and TV advertising. 
 
Secondary Market Annuity... Image Via Wikipedia
J.G. Wentworth buys these contracts, packages them into a fixed income portfolio, and resells them to institutional investors. Of course, they pocket the the spread and make a good business out of doing it. Read the release here.
 
The key to this is that factoring companies like J.G. Wentworth create high-quality fixed income portfolios that are in high demand from banks, corporations… and insurance companies. An insurance company can conceivably buy a securitized portfolio which may in part be comprised of its own obligations! 
 
In this we can see the essence of Share Prices – they are such ultra safe and secure financial instruments that they are in demand by the most stable and risk averse institutions. Secondary market annuities thus may indirectly contribute to the safety and yield of primary market annuities.
 

Ultra Safe, Guaranteed Cash Flows:

 
Wentworth does on an institutional scale exactly as we recommend to our clients: they assemble many Secondary Market Annuities to create a desired stream of cash flow, but one that is of higher yield than what is available on the open market. Bundled together, these financial instruments become smooth payment streams.   Wentworth’s buyers have the same goals as you: they want ultra-safe, guaranteed returns to add stability to their investment portfolio.
 

Stefano Sola, J.G. Wentworth Chief Investment Officer phrases it like this:

“The driver behind this decision was the underlying investor appetite and demand for long term access to strong, consistent and predictable cash flows”

 
Does this sound familiar? Frequent readers of this site will realize that’s exactly the benefit I’ve emphasized all along. A strong, consistent, and predictable cash flow is precisely what individual investors should seek for guaranteed retirement income. Do you believe me yet? 
 
Consider this: Would you like to get a 3.5% fixed annuity from a company like MetLife whose assets may include this securitized portfolio from J.G. Wentworth, or would you rather get the SAME QUALITY UNDERLYING ASSET yielding 6.5% from me? Seems like an easy decision.
 

This Market Is Open To You…For A Limited Time:

 
As you may be aware, I have access to excellent Secondary Market Annuities for individuals.  Though they are available to individual consumers currently, this has not traditionally been the case, nor may this market stay open to individuals for long. While this limited opportunity is available I suggest you take a closer look before the demand from banks comes back, and J.G. Wentworth and others absorb all available inventory and shut off the valve for good.
 
All the details of these transactions are available for your due diligence before entering the market. Once you reserve a specific contract you can investigate all the underlying facts and make your own independent verification. Take advantage of this excellent opportunity while you can.
 
This is an exceptional opportunity to increase the yield substantially on the safe portion of your portfolio. Take the opportunity now to get on the institutional side of a financial transaction for a change!
 
Have a great week!
 
Bryan J. Anderson
800.438.5121

Secondary Market Annuity Brochure Available

Many of you are interested in the secondary market for annuity products but are taking the prudent approach by doing a little research first.  I think that’s a great idea!  And now I have a little more to offer with a shiny new brochure that does a great job explaining these contracts.  The information here is similar to what is available on this site but will go into a little more detail so please let me know if you are interested and I’ll email you right away.

Read the Secondary Market Annuity brochure in order to answer these questions…

  1. What is a secondary market annuity?
  2. What are the risks involved?
  3. How do I buy one?

The secondary market for annuity products presents the opportunity for exceptional fixed interest rates that are likely to enhance the profitability of most, if not all, retirement portfolios.  Is an SMA right for you?  Get the brochure and find out.  The easiest way to get it is to send me an email and I’ll attach and return promptly.  Follow the email link at the bottom to send me a message and put “SMA Brochure” in the subject line.

As for what’s currently available, check out the Secondary Market Annuity Availability list on this site to see if there’s anything that sparks your interest.  You are likely to find anything from short-term deals that handily beat current CD or fixed annuity rates to long-term income deals that offer extremely profitable cash flow over time.

Whether income starts immediately or at a later date, these offers yield far more than you’ll find in the current markets.  The best part is that it comes with the same safety and guarantees of any top rated annuity product.

Check it out the list now and call or email to reserve one of these exclusive annuities today!

Bryan J. Anderson
800.438.5121
[email protected]