One question we often get from attorneys is this: what are the current structured settlement annuity interest rates like currently? This is a great question — and it’s one that is hard to answer without additional information.
The short answer is: not very much. The long answer is: it depends on the client and the client’s situation.
We are currently experiencing a historically low-interest-rate environment. Interest rates on a guaranteed annuity from companies like Pacific Life or New York Life are going to be fairly low.
However, the exact interest rate will also depend on the time horizon and the duration of the payment stream for the annuity. If the annuity will payout in the next 5 or 10 years time horizon, the interest rate on that annuity is going to be very low.
But if the annuity is for a lifetime payment stream, that means the duration of the payment stream will be much longer — which results in a higher interest rate.
Another factor that helps determine the interest rate on an annuity is whether your client qualifies for a rated age. If you have a client needs lifetime payments and has some medical challenges, we can the client’s medical records to the annuity companies. The annuity companies will determine if the client is eligible for a “rated age.”
A rated age is based on a client’s injuries and his or her current health status — rather than only using the client’s biological age. For example, if the client is a 30-year-old who suffered from severe injuries, the annuity companies might give that client an age rating of a 50-year-old. In that situation, a lifetime annuity makes better sense, and the interest rate may be higher because of their age rating.
Cases for Minors
Annuity rates can also be higher when you’re working on a case for minor. Because the minor cannot get any money out of the annuity until age 18, there’s enough time before the payment stream begins that the annuity interest rate will be a bit higher — and the fact that the principal and interest earned on those annuities are totally guaranteed and completely tax-free is a great benefit.
In short, to answer the question — what are interest rates like right now? — they’re bad. In spite of that, a structured settlement annuity should still be a consideration for your client. It might make sense if payment aren’t needed for a few years.
If you have any questions about structured settlement annuities and whether an annuity might make sense for one of your clients, please send us a message or give us a call. We’d be happy to discuss the best approach and solution for your client.