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,
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.
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.