One of the most challenging tasks of making one’s personal injury settlement proceeds last a lifetime can be made more manageable with a Structured Annuity.
Structured Annuities have been less appealing during the 10-year bull market with abnormally low volatility and interest rates near record lows. Now, many of us watch our investment portfolios dwindle during the current market crash. For those people with jobs, this means either increasing contributions to future savings, postponing retirement, or both. For many personal injury claimants, their money is gone with no options for recovery. Their expenses stay the same while their investments tumbled. They do not have the option to work longer or increase their savings. For those that elected a structured settlement, their payments continued uninterrupted. Structured Settlement recipients never lost any sleep wondering how they were going to pay their bills. The comfort of the guaranteed income stream protecting a lifetime of income provides the peace of mind and security that would have been lost in the equity markets.
Many financial planners have maligned annuities over the years calling them “gimmicks” and accused insurance companies of stealing away principle, but when one considers the basic features such as guaranteed payouts and downside protection, annuities hold their own in times of uncertainty.
Personal injury claimants may not be the most skilled or sophisticated investors. They are subject to pressures unlike that of typical investors. Yet, financial planners often advise claimants against the Structure option citing the lack of liquidity or the hopes of increasing interest rates. They are told that “rates will go up.” This results in claimants taking a full cash settlement in the hopes of higher returns that never materialize. In fact, they often spend down the proceeds and never participate in a good sound investment. The real issue is protecting the settlements assets from the claimants themselves, their family, friends, divorce, or the investment advisor looking for an ongoing commission paradise.
A structured annuity is completely tax free- no Federal, State or Local tax. There are no reporting requirements or 1099s- unlike what is required after a financial planner gets a hold of things. Settlement proceeds are supposed to last forever and/or replace lost income due to injury and ongoing disability. That’s why Congress afforded the tax-free offering. Annuitizing/Structuring a settlement does just that. It also provides peace of mind so claimants do not to have to worry about how to provide for monthly income to age eighty or beyond. Also known as “Mortality Risk” . With the advances in science and medicine, people are living longer than ever. As a result, Mortality Risk may be the most important component for any claimant.
Outliving your assets is of great worry and Structured Settlements help alleviate those fears. Annuities date back well over 100 years, but Longevity/Mortality risk is a fairly new concern. Consider that in the 1930’s people lived on average to around 60. Retirement only lasted 5-6 years. If you lived a bit longer company pensions continued to provide income. Now pensions are all but extinct as corporate America jockeys for that best stock price. We have traded the certainty of a pension for the investment risk of a 401(k), while many of us are expected to live into our eighties or beyond.
It is our experience that approximately 90% of the claimants that did not structure their settlements, burned through their cash amounts in 48 months or less!! The amounts invested varied, but the result was the same. The claimants that structured their funds still have those payments today.
Lastly, Structured Settlements always provide the claimants with a pleasant reminder that their attorney went above and beyond to protect them, especially when they have a check arriving every month for the rest of their lives.
At the very least, we owe it to our clients to explore the option to live with the piece of mind provided by Structured Settlements.
Let our firm walk you through what a Structured Settlement can do for your client and your overall practice.