Rescue Capital Blog Your Money, Your Way

7Jun/12Off

Structured Settlement Surveys: Are they statistically relevant?

Posted by Dawn Anderson

Last week J.G. Wentworth released a press release stating that only 6.6% of structured settlement recipients sell their future payments and that those who do sell commonly cite getting out of debt, purchasing a home or vehicle, unexpected medical bills or continuing their education as reasons for selling. [i]

The press release stated that the study was based upon data collected by J.G. Wentworth over the past 20 years but it did not provide any further details regarding the data collection. For instance, how did they obtain the data; how many people were included in the study and did it include data from other factoring companies besides J.G. Wentworth/PeachTree? In addition, there was no mention as to whether discount rate played a considerable role in the annuitants’ decision to sell.

Back in 2008, J.G. Wentworth published an email survey of 115 respondents who previously sold some or all of the payments to J.G. Wentworth in exchange for a lump sum payment. In this survey, only 18% said they were completely satisfied with their structured settlement. 31% said they didn’t wish that there attorney negotiated a single lump sum payment which means that many of them would have liked a lump sum payment. 60% of the respondents sold their payments to pay bills while less than 5% did so in order to buy a house. 30% stated that they would not sell their payments again. J.G. Wentworth only released 9 questions to an industry blogger and did not reveal the remaining questions, the number of individuals the survey was sent to or any other circumstances that could have skewed the results of the survey.[ii]

In the 2006 The National Structured Settlement Trade Association (NSSTA) survey of attorneys involved in structured settlements (43 telephone surveys) and structured settlement recipients (1275 telephone and Internet surveys) 75% of annuitants were happy with their structured settlement and would recommend one. [iii]

In an AIG survey of 1,000 participants, 65% of respondents said they would elect a lump sum payment, while 26% stated that a lump sum was more appropriate to pay bills.[iv]

So if that many people wanted a lump sum payment then why aren’t they selling? In a review of 100 recent factoring transactions it was revealed that the average discount rate was 13.75% with 7.5% being the lowest and 20% being the highest. So you have to question whether the 93.4% of individuals that chose not to sell would have changed their mind IF the discount rate was closer to the 7.5% rate.

As structured settlement annuity premiums continue to decline (10% from 2010 and 20% from 2008)[v], there will be fewer annuitants available to market. While it seems perfectly logical that this would in fact lower the discount rate, if one looks at current trends it mostly will not occur.

For example, the top three companies spend millions of dollars a year in order to entice annuitants to sell. They’re all well established and are household names. Smaller, lesser known companies cannot afford to go head to head in advertising spends with these industry giants so they tend to focus on non-traditional marketings. While some sellers will seek out these smaller players in order to obtain better rates more often than not a first time seller will call one or two companies they see on TV. Which basically means they are going to receive rates of 13% or higher.

While the decline in annuities does not currently seem to be an issue for J.G. Worthworth/Peachtree who already completed a $244 Million Securitization this year[vi], one has to wonder whether primary market decline and increased competition combined with well informed, tech savvy consumers could adversely affect their business in years to come.

J.G. Wentworth had securitizations worth $469,000,000 in 2011 and $579,000,000 in 2010.[vii]  This represents 9.4% and 10% of the annual premiums for those years.


 



30May/12Off

You have a structured settlement but you need cash…

Posted by Dawn Anderson

Chances are you’ve seen at least one “get cash for your structured settlement or annuity payments” commercial on TV. But do you know what a structured settlement is, how do you get one and how you can get cash today for your future payments?

A structured settlement is a financial arrangement that allows court-awarded compensation stemming from a lawsuit to be paid in regular installments rather than in one lump sum. The payments are paid over a fixed period of time or over the recipient’s lifetime. Some settlements may include a portion of the money to be paid as a lump sum payment, while others only offer periodic payments.

Structured settlements are often awarded to:

  • People with temporary or permanent disabilities
  • Guardianship cases involving minors or persons found to be incompetent and workers compensation cases
  • Wrongful death cases where the survivors need monthly or annual income
  • Severe injury with long-term needs for medical care, living expenses and family support

Although the reasons vary, people often sell their structured settlement payments for a cash lump sum to

  • Avoid foreclosure
  • Pay for medical care/bills
  • Make home repairs
  • Pay off high interest debt
  • Start a business
  • Put a down payment on a house
  • Buy a car
  • Continue their education
  • Pay taxes

A common underlying reason for selling future payments has to do with inflexibility of small stream of payments. Waiting for future payments doesn’t always work with your financial needs especially when you are struggling financially. That's why Rescue Capital is here to help. By purchasing all or some of your future payments for a cash lump sum payment, you can use the money the way you need.

Call Rescue Capital at 866.688.3532 to get your free no-obligation quote.



8May/12Off

1,500 ELNY short fall victims under pressure to accept payment cuts rather than appeal

Posted by Dawn Anderson

When an injured party is the recipient of a court-awarded compensation it is often encouraged by everyone involved for the party to receive their settlement in the form of periodic payments through a tax-free income stream. The intention is to ensure that the injured party does not prematurely exhaust their settlement funds and have guaranteed income for a specific time period. [2]

As previously reported, Nassau County Supreme Court Justice John Galasso approved a plan to liquidate Executive Life Insurance Company of New York (ELNY) resulting in major losses in benefits for many personal injury victims. [2]
Obviously this causes a great financial burden to those victims who rely on the money in order to support themselves as well as their families. As you can imagine there are many people who disagree with the outcome, specifically the 1,500 annuitants who will be receiving cuts in their payments as a result of the approved liquidation. In some cases these cuts are more than 50%. [1]

According to structured settlement industry expert, Patrick Hindert, the life insurance industry is voluntarily establishing a $100 million “Hardship Fund” to assist those people who are affected the most by the liquidation. This amount only represents 10% of the actual shortfall. [3]

Hindert, quoting several passages from documents sent to shortfall victims, has implied that any appeal and subsequent rejection of Judge Galasso’s order will cancel the conditions for establishing the fund. As a result no payments will be made available to the shortfall victims. [3]

Many individuals are worried by the perceived attempt to strong arm annuitants into accepting the deal rather than appealing the terms of liquidation order. [3]

Speaking for the ELNY structured settlement shortfall victims he represents, attorney Edward Stone states, "These statements represent another strong arm tactic to try to prevent ELNY shortfall victims from pursuing their constitutional rights." [3]

Some victims who chose to remain anonymous believed it would have been more fair if the loss would have been distributed equally among all annuitants rather than single out the 1,500.[3]

One industry expert had a different take stating, “Annuitants received 100% of what was a grossly unreasonable annuity amount.” [5] Implying incompetent regulators who allowed the sales to happen, the poor pricing of annuities as well as the annuitants’ willingness to put all their “eggs in one basket” were part of the reason ELNY failed while others prevailed. [5] This individual suggests that ELNY victims, many of whom were minors at the time, should examine all the facts around their cases, sales literature, correspondence and financial comparison to determine if their parents, lawyers etc were at fault for buying the ELNY annuities in the first place. [5]

Since the 1970’s, life insurers have paid benefits worth approximately $100 billion, according to industry experts.[1] Structured Settlement annuities have been a major source of profits for many life insurance companies including some that are currently experiencing losses. [4] Therefore it comes as a shock to discover that the insurance companies aren’t willing to do more to help the victims.

If annuitants can no longer believe the guarantees stated by insurers, the perceived value of annuities, as a whole, will greatly diminish ultimately decreasing the demand for such products. While the ELNY case may be the only such case of an insured not being able to pay its annuitants, we do not know if it will be the last time this will happen. We do know that any perceived instability by insurers, whether real or imagined, could adversely affect the reputation of an industry that markets itself as a “safer” investment.

Regardless for the reason for ELNY’s demise there needs to be something in place to protect the rights of all annuitants ensuring that their guarantees are honored. Perhaps there is a need for additional legislation, perhaps the system as a whole needs to be re-examined.

1. http://online.wsj.com/article/SB10001424052702304299304577348342869349010.html
2. http://rescuecapital.com/blogs/2012/04/a-bad-day-for-structured-settlement-annuitants/
3. http://s2kmblog.typepad.com/rethinking_structured_set/2012/05/elny-hardship-fund.html
4. http://rescuecapital.com/blogs/2012/04/metlife-first-quarter-2012-losses/
5. http://structuredsettlements.typepad.com/structured_settlements_4r/2012/05/with-all-due-respect-to-elny-victims.html



7May/12Off

Structured Settlement Bone Yard

Posted by Dawn Anderson

For as long as I can remember people have hated the industry I worked in—structured settlement factoring; terms such as white hat and black hat were often used. Financial professionals as well as some consumers have often compared us to the modern day equivalent of snake oil salespersons because we buy future payments. They imply that we’re doing something wrong for providing liquidity to assets that annuitants can’t use as collateral.

Lawyers and legal settlement planners with their crystal balls create settlements for individuals, planning out their future financial needs. At settlement or during a mediation they do what is believed to be best for the plaintiff and potential structured settlement recipient, but, in reality, we can’t foresee the future and the only certainty in life is death and taxes. People lose jobs, get divorced, owe taxes and suffer from illness without notice. Life changes and so do people’s financial situations. That’s why structured settlement factoring exists.

Financial pressure can be enormous. Sometimes people are desperate enough to do anything to get out of their situation and will make hasty decisions. Other times they just know what they need. They have weighed the options, done the math and selling some of the future payments makes sense. They don’t have to sell all the rights to their future payments, just enough to get what they need to help themselves out of a tough situation.

In every industry there are a few individuals or companies with questionable ethics. There are also companies where integrity and ethics prevail. These companies offer competitive pricing and look out for their clients’ best interest. Their rates are consistently lower than most credit cards, cash advances and payday loans. Also since selling future payments isn’t a loan they annuitant isn’t creating additional debt.

One huge misconception is that all factoring companies pay only a small fraction of what the payments are worth.  That is to say, the present value of a future payment today will be less than the principal amount when it comes to maturity.

Here’s an example that will help you understand. Let’s say Jane is offered the choice of $100 today (present value) or $100 next year what should she do? Take the money now because it is worth more now than in the future. When buying structured settlement annuity payments, a factoring company uses a mathematical calculation to figure out how much your future payments are worth in today's money taking into account inflation rates and interest rates. In addition, if Jane took the $100 today and invested it she would have more money in a year.

Many detractors want you to believe that the annuitant would receive a microscopic amount compared holding onto the annuity. They fail to consider the future value as well as the diminished buying power of the money. Seriously folks do you think the factoring industry would still be around if people were being swindled out of their money? Forty-six US States and the Federal Government have enacted consumer protection statutes to make sure these transactions are in the best interest of the seller. If New York State is an indicator, contracts with ridiculous rates will not be approved.

Selling future periodic payments isn’t something that should be done in haste. By researching the companies before you call them you can avoid the hassles of dealing with companies with bad reputations. If there are no complaints with the Better Business Bureau AND your state attorney general’s office, call for more information. Don’t be afraid to look on the Internet to see if others are complaining on websites like Rip off Report.

Make sure you get a few quotes before you sign on and get everything in writing. Don’t just take the company’s word for it, read everything they give you. Beware of hidden fees, bait and switch offers or salespeople trying to pressure you into signing. If you don’t understand what you’re reading have a trusted advisor review it. In a dog eat dog world of finance, don’t be caught wearing milk-bone underwear—look at for you and your best interest.