A structured settlement annuity is an excellent vehicle for those who are receiving a personal injury settlement and want to receive income on a monthly or yearly basis. This article will go over the basics of a structured settlement annuity, and explain what makes this a valuable tool when allocating a client’s settlement proceeds.
What is the Main Benefit of a Structured Settlement Annuity?
A structured settlement annuity is designed to spread out a settlement out over a period of time in an effort to:
- replace income for someone who can no longer work
- provide for college payments for a minor, or
- provide for college payments, and then a lump sum to get going in life
- fund future needs and goals
Because payments are spread out over time, one of the main benefits of a structured settlement annuity is that the annuity provides dissipation protection. What that means is that it prevents a client from getting a lump sum of money and dissipating it to the point that they are left with nothing else to live on.
What are the Other Benefits of a Structured Settlement Annuity?
Another benefit of a structured settlement annuity is that it can be designed to pay in almost any manner conceivable so that payments can match a client’s needs for the foreseeable future. Similarly, a structured settlement annuity also has the flexibility to allow for future expenses to be offset by future income.
In terms of interest, whatever is earned inside of a structured settlement annuity is also tax-exempt. This means that for clients that are older, or maybe in a higher tax bracket, or have lots of taxable income from another retirement plan, a structured settlement annuity can help build their wealth tax efficiently— and it can even be paid out for for the rest of clients’ lives.
Structured settlement annuities are offered and guaranteed by some of the largest insurance companies in the world, such as MetLife, New York Life, Pacific Life, and Berkshire Hathaway. By working with financially robust companies, clients can rest assured that the annuity will be paid out regardless of what happens in the financial markets.
What are the Downsides of a Structured Settlement Annuity?
Although structured settlement annuities offer several advantages, there are several downsides too, such as:
- Once funded, structured settlement annuities cannot be accelerated or changed, for any reason.
- Once they’re established, the rates of return are fairly low especially in this interest rate environment (though rates have been improving recently).
- The only way to access liquidity from a structured settlement annuity is by selling all future payments, or a portion of them. More commonly known as “factoring,” annuitants are usually required to sell their future payments at a discounted lump sum.
Should You Get a Structured Settlement Annuity for Your Client?
In many situations, structured settlement annuities make a lot of sense to set up for a client. If you have clients that you think may benefit need lifetime income or income replacement, or would benefit from the dissipation protection a structured settlement annuity provides, please use the button below to schedule a call. We can help design a plan that best suits your client’s needs.