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Flight to Safety

Has anyone noticed how many of the phrases in today’s news articles come from the world of aviation? Phrases like “bailout” once meant that the aircraft you were in was in such bad shape that your chances for survival increased if you actually jumped out mid-flight. In these cases, you may survive but the aircraft is doomed to crash. As we all now know, the modern vernacular of “bailout” means that the industry or company you are in is in such bad shape that it’s only hope for survival is for the government to pour in massive amounts of cash. In this case, you the employee will probably perish but the company could survive. A pretty relevant flip of fate there...

You may also read about a “flight to safety”. In its best connotation, one thinks of the incredible landing made by Pilot Chesley "Sully" Sullenberger of U.S. Air flight 1549. Here, against horrendous odds, a skilled pilot safely landed his stricken aircraft and saved the lives of all on board. Yet, even in light of Captain Sullenberger’s daring landing, the phrase “Flight to Safety” has come to mean something different entirely. It has nothing to do with aviation or physical safety but refers instead to financial security, something apparently in short supply these days.

Where can one find safety in today’s economy? The general public believes there is one place and one place only: U.S. Treasury Bills! Many regard Treasury bills (a short term investment that matures in one year or less) as the least risky investment available to investors. The desire for security of principle is so great that over a hundred billion dollars has been invested in U. S. Treasury Bills yielding a 0% interest rate. That is no typo: I wrote 0% or ZERO percent interest! Are we talking about stuffing the mattress again? In an article entitled “Who’s Piloting U.S. Treasury Bonds’ Flight to Safety” published on December 18, 2008, author Brian Kelly documents that in the single month of October 2008 alone, investors purchased $ 92 billion dollars of U. S. Treasury Bills yielding 0% interest.

In ordinary times, most people would rightly ask: “who in their right mind would invest their money in anything with a 0% rate of interest?” The answer is: people who want to avoid any risk of losing money. Remember our prior article entitled “Risk is Real”? Now don’t get me wrong, there are longer U.S. treasury obligations that do offer yields in positive numbers. If you are willing to invest in a ten-year Treasury bond, you can earn a guaranteed 2.95% before taxes. Want higher still? A twenty-year Treasury bond will guarantee you 3.86% before taxes. However after a 28% tax, your 3.86% return returns a “real” 2.7%. No wonder most investors are opting for a short term 0% interest rate.

So, what have we learned? We know risk is real and it’s just common sense to want to protect what money you have left. But if you are making long-term financial decisions, accepting zero or low returns from the U.S. Government doesn’t sound too appealing.

Ironically, the least fortunate among us can count themselves “lucky” in this regard. People who have suffered a personal injury through no fault of their own qualify for a higher yielding yet still secure option: a Section 104 structured settlement. While not U.S. Treasury obligations, so far as security of principle goes single premium immediate annuities (the financial contract behind a traditional structured settlement) come mighty close. These products have stood the test of time and have proven time and again to be a premier safe haven for generating long term dependable income. It is no accident that these products continue to provide unrivaled guarantees of payment.

The life insurance companies that issue these contracts are among the most highly regulated companies in the world. Even in this day of emergency action and bailouts the National Association of Insurance Commissioners denied a request to relax life insurance company capital and surplus requirements. NAIC President and New Hampshire Insurance Commissioner Roger Sevigny said “So far, the insurance industry is in much better condition than most of the rest of the financial services sector because of strong state solvency regulations.” Sevigny added. “State insurance regulators use time-tested tools to protect consumers and help maintain a solvent and competitive marketplace.” Here lies the basis for the guarantee of payment that is the root strength of all structured settlements.

A flight to this kind of safety provides first class accommodations not found in U.S. Treasury obligations. As I write this article, a structured settlement annuity making payments guaranteed for thirty years will provide tax-free benefits at a rate of return of over 5%. This is nearly double what the long term treasury obligation yields after taxes.

The idea of taking a flight to safety can be a prudent and intelligent way to manage your money in today’s uncertain economy. Structures are designed to provide just the kind of “downside” protection people wish they had in times like these. Compensation for personal injury happens once and once only; how to handle that money should be the topic of a deliberate and thoughtful consideration of how important economic security is or is not to the recipient. Once they learn about secure, guaranteed and tax-free structured settlements, most claimants eagerly hop aboard. This is one particular “flight to quality” they don’t want to miss.

Are any of your claimants worried about their financial security in this economy? Call Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.

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1 Brian Kelly, "Who's Piloting US Treasury Bonds' Flight to Safety?", Seeking Alpha, http://seekingalpha.com/article/110873-who-s-piloting-u-s-treasury-bonds-flight-to-safety

2 National Association of Insurance Commissioners, News Release, January 29, 2009,http://www.naic.org/Releases/2009_docs/capital_surplus_denied.htm