Here are a few definitions to help you understand the secondary market for structured settlements.
The individual on whose life the annuity is based and generally the person
receiving or entitled to the annuity payments.
A contract that provides periodic payments for a specified time period, such as for a number of years or for the life of the annuitant.
The guaranteed periodic payments that will be paid to the payee during the payout period.
The agreement between the annuity owner and the insurance company that stipulates the features of the annuity and the responsibilities of each party.
The insurance company that issues the annuity.
The individual(s) or company that purchased the annuity. Depending on the terms of the annuity contract, the owner or owners may have the right to make withdrawals, surrender or change the designated beneficiary, or make other changes to the terms of the contract.
A legally binding ruling issued by a judge or properly empowered administrative officer.
Court Order Attorney
The attorney that files a petition for court approval of a structured settlement payment transfer.
An individual, company or institution sued in a civil case.
The rate used to convert future receipts or payments to their present value. It typically ranges from 12% to 22%, depending on many factors, including how far in the future the payments will be paid, the costs incurred by the funding company that is purchasing the payments, the creditworthiness of the insurance company making the payments, whether the payments are guaranteed or life contingent, and state law restrictions on discount rates.
Discounted Present Value
The net present value of future payments, this is determined by discounting the future payments to the present.
An arrangement whereby a trusted, independent third party typically holds money or important documents until certain agreed conditions are met.
Federal Tax Liens
A claim against property for the amount of the owner’s tax obligations owed to the federal government.
A sworn statement of income, expenses, property (assets) and debts (liabilities).
Estimated Full Purchase
A transaction in which the customer sells their entire annuity or structured settlement payment stream.
Gross Purchase Price
The sum payable to the payee or for the payee’s account as consideration for a transfer of structured settlement payment rights, before any reductions for transfer expenses or other deductions to be made from such consideration.
See: Guaranteed Payments
Payments made regardless of whether the annuitant is living or deceased.
A person who has the power and duty to take care of another person and/or to manage the property and rights of another person, who is either a minor or deemed incapable of taking care of his or her personal affairs.
The person who is insured under the policy.
The payee, any beneficiary designated under the annuity contract to receive payments following the payee’s death, and any other party that has continuing rights or obligations under the contract.
A person acting for and legally authorized to execute a contract for an individual.
The number of years a person is expected to live based on the average of a number of factors.
Life Only Payments
See: Lifetime Payments.
An annuity income option that makes monthly payments of equal amounts for the remainder of the annuitant’s life, regardless of the length of time.
The ability to have ready access to invested money.
Lump Sum / Lump Sum Payment
A sum of money paid in a single installment.
Lump Sum Annuity
An annuity designed to make a single payment on a specified future date or a series of lump sum payments on specified future dates.
Net Present Value
The amount of cash today that is the equivalent in value to cash to be received in the future based on a specific discount rate.
Net Purchase Price
The sum payable to the payee or for the payee’s account as consideration for a transfer of structured settlement payment rights after any reductions for transfer expenses or other deductions to be made from such consideration.
The act of a notary witnessing a person signing a document. Many legal documents require a notarized signature.
When a customer sells only a portion of their structured settlement or annuity payment stream.
The person to whom the annuity issuer makes annuity payments.
Payments received periodically from a structured settlement, annuity or lottery winnings.
Period Certain Payments
The time period during which structured settlement or income annuity payments will be paid, whether or not the annuitant dies prior to the completion of the period.
Payments that are paid or received regularly, typically on a monthly or quarterly basis.
An injury to a person’s body or mind, as the result of an accident.
The aggrieved party in a civil case.
The current worth of an amount to be received in the future. In the case of an annuity, present value is the current worth of a series of equal payments to be made in the future.
The industry that creates structured settlements. This includes insurance companies and settlement brokers. The parties in a lawsuit can decide that it would be appropriate to end the case with a structured settlement. Either the plaintiff or defendant may choose to hire a broker who will look for an appropriate annuity from an insurance company to fund the settlement. The brokers and the insurance company are all part of the primary structured settlement industry. The tax laws do not allow the parties to a structured settlement to increase, decrease, speed up, or delay the payments. This led to the development of the secondary market.
This is the amount that the purchaser is offering to pay for the asset.
An assignment of the obligation to make future settlement payments, which satisfies the requirements of the Internal Revenue Code for favorable tax treatment of a structured settlement. Typically, the insurance carrier for the defendant assigns its obligation to make the future payments called for in the settlement agreement to an assignee, which then takes on such obligations, often through the purchase of an annuity.
Responsible Administrative Authority
With respect to a structured settlement, any governmental authority vested by law with exclusive jurisdiction over the settled claim resolved by such structured settlement.
The industry that purchases structured settlement payment streams. Members of the secondary market buy all or part of a structured settlement from the payee (the person entitled to receive payments). This gives payees more financial flexibility and control over their assets. The payee assigns the right to receive future payments to a funding company. In return, the funding company pays the payee the discounted present value of the future payments. The amount of this payment is calculated using a discount rate. Federal law requires all structured settlement sales on the secondary market to be reviewed by a judge.
When the original tort claim or workers’ compensation claim is resolved by a structured settlement.
An agreement between two parties to actual or potential litigation, under which the parties agree to a resolution of the dispute.
State Tax Lien
A claim against property for the amount of the owner’s unpaid state taxes.
An agreement or concession made by parties in a judicial proceeding (or by their attorneys) relating to the business before the court.
Stream of Payments
Payments received periodically from a structured settlement or an annuity.
An arrangement that settles a lawsuit or workers’ compensation claim by letting the defendant pay the plaintiff money in installments over a period of time. They often are used in personal injury, product liability, and wrongful death claims. The person receiving the payments (also called the payee) benefits from a reliable income stream. The party making the payments knows in advance how much it will have to pay. Structured settlement payments that are part of a settlement reached in a physical injury or wrongful death case are not taxed as income by the IRS.
Structured Settlement Agreement
The agreement, judgment, stipulation or release embodying the terms of a structured settlement, including the right of the payee to receive periodic payments.
Structured Settlement Obligor
The party that has the continuing periodic payment obligation to the payee under a structured settlement agreement or a qualified assignment agreement.