What is a structured settlement annuity?

A Structured Settlement Annuity (SSA) is a contract issued by an insurance company that originated from a legal action such as a car accident, work accident, wrongful death, medical malpractice, etc. The original claimant (plaintiff) chose to accept a series of payments instead of a lump sum settlement. This series of payments is guaranteed by a US-based insurance company and is in the form of a fixed annuity.

In about 20% of cases, claimants (or their heirs) choose to sell their SSAs (in whole or in part) for a discounted cash lump sum today.

What is the process when a Claimant decides to sell their SSA?

Claimants considering selling their SSAs look to factoring companies that are institutions that purchase SSAs. Claimants seek to obtain the largest lump sum of cash today in exchange for the rights they give up to receive those future payments.

This process must go through the court system that protects both the claimant and the factoring company in the SSA sale. Once the settlement is made and approved by the courts, the factoring company pays the original claimant the agreed amount in a lump sum and the claimant signs over all rights to receive those future payments.

When a factoring company purchases an SSA from a claimant, it then offers to sell those court-ordered rights to recover the funds they paid. Some factoring companies package SSAs and sell them on Wall Street or to large institutional investors and pension plans. Some factoring companies sell them to individual investors through a network of brokers as a safe money alternative that are good options for both IRA and non-IRA funds.

Payment streams can be ongoing monthly payments over a set period of time, or they can be in the form of a deferred lump sum.

The security falls on the insurance company that supports the payment flow. In addition, in most states there are State Guarantee Associations that support the principal of these annuities up to a certain amount. These are fixed annuities and, as such, enjoy this protection.

The court process is designed to protect all parties. The court sends a letter to the underlined insurance company notifying them that their policyholder (the claimant) has sold their contract rights to the new owner. Once the insurance company responds and accepts (Letter of Acceptance) the transfer of ownership, the guarantee to the new buyer is complete.