GOOD NEWS!!!
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Yes, believe it or not, I actually have good news to report – and it’s financial. That alone should get your attention. The weird thing is that I did not consider this to really even be news until receiving a call from a client the other day. I presumed everyone understood where structures fit in the larger financial world, but apparently that’s not true. It’s all such a blur; I guess it’s hard for some folks to discern what’s secure from what isn’t. That a simple and established 25-year-old fact should be news these days tells you just how strange things have become.
And that fact is this: throughout the incredible volatility of recent months - foreclosures up, the stock market down, treasury bills paying negative interest – through all of it, structured settlements have just kept chugging along, paying in full and on time. For many people, a structured settlement check has become far more secure than even their paycheck, with one important distinction – no taxes taken out. None, zip, zero.
That this is news just shows how insidiously the doom and gloom stories we see in the news have impacted how we live and the decision we make. Who would imagine that structured settlement sales are actually up? Well, they are.1
But my client didn’t realize it. Our conversation went like this: he said to me “Gee, it’s too bad structures aren’t around anymore, I could really use one on this case”. After stopping to pick my jaw up off the floor, I asked him just where in the world he had gotten the impression that anything was up with structures. He answered that with the news about all the big banks and financial institutions taking government money and needing bailouts, he figured that structures certainly could not have escaped the wreckage.
Well, he was dead wrong but I can understand his mistaken assumption. How is it possible that structured settlements are paying just fine when everything else seems so wobbly? Well, the answer is: they can do it because life insurance company-backed annuities are built for the long term and thus built specifically to weather financial storms. No one at any settlement annuity issuer is enjoying the current downturn in our economy but there has been no serious talk anywhere of any annuity issuer not being able to make payments to beneficiaries. See last month’s edition of this newsletter for a more complete explanation of the multiple defensive layers built into life insurers to ensure they make good on their promises.
"The industry continues to hold capital and surplus well in excess of the minimum requirements -- even after the detrimental effects from 2008," according to Therese M. Vaughan, the CEO of the National Association of Insurance Commissioners as reported in the Wall Street Journal on March 17, 2009.
If you are not a technical type, then perhaps all you need to know is that structures are in good shape, paying just fine, oh and did I mention the returns? Not yet.
Well, in correcting my friend’s mis-impressions that was the next thing we covered. Not only could he still offer secure structured settlements custom designed to meet his claimant’s needs, the income is still completely income tax-free for injured claimants and long-term rates of return are currently exceeding 5.25%. That’s a taxable equivalent of over 7.3% for taxpayers in the 28% tax bracket; over 8% for many who pay even higher combined state and local taxes.
Knowing that, is there any doubt whatsoever that a claimant would be eager to learn more about structured settlements? Most people grit their teeth, cover their eyes and peek through barely opened fingers when they open their 401(k) statements (if they look at them at all) and many have completely rearranged the timing of their retirement. The idea that such returns are still available to them from such a secure source is nearly miraculous. Good financial news? Impossible.
So it is with physical injury claimants. Thanks to the U.S. Congress’ foresight in mandating the use of highly secure funding assets to back structured settlements, claimants too are in the rare position of being able to take advantage of current conditions, instead of falling prey to them.
To make the point, let’s review directly how structures compare to U. S. Treasury bonds. Rather than stuff cash into a mattress, some frightened investors are pouring money into Treasury obligations. So much that it has driven down the interest rates on these bonds to meager levels. Compare 20- and 30-year treasury's to current structured settlement rates:
Return
Whoops, but remember that treasury bonds are fully taxable. Reduce these returns by 28% and see how they fare.
After-tax Return
When you compare structures with other secure investments it becomes painfully clear that structures offer outstanding value. Are any of your injured claimants worried about the economy and their financial security?
Offer them clarity and an incredible favor: call Frank C. Kilcoyne, CSSC at 800-544-5533.
I am here to help.
1 2008 structures exceeded 2007. They experienced a big surge in the fourth quarter, according to a recent press release from Randy Dyer, former Executive Director of the National Structured Settlements Trade Association.
