Sell Structured Settlement Finding Buyers and Pricing 2 — Questions and Answers
Question 1: What is the role of a structured settlement consultant or broker who assists a payee in selling their payments?
- They underwrite the annuity backing the settlement
- They help the payee evaluate offers, understand the process, and navigate the transfer transaction (Correct answer)
- They represent the factoring company in court proceedings
- They determine the appropriate discount rate on behalf of the IRS
Correct answer: They help the payee evaluate offers, understand the process, and navigate the transfer transaction
An independent consultant or broker helps the payee understand their options, compare offers from multiple buyers, and make informed decisions throughout the transfer process.
Question 2: Why do factoring companies typically pay more for guaranteed structured settlement payments than for life-contingent payments?
- Guaranteed payments have higher interest rates built in
- Guaranteed payments will be received regardless of the payee's death, eliminating mortality risk (Correct answer)
- Life-contingent payments are illegal to purchase in many states
- Guaranteed payments are tax-free to the factoring company
Correct answer: Guaranteed payments will be received regardless of the payee's death, eliminating mortality risk
Guaranteed payments eliminate the risk that the income stream ends early due to the payee's death, making them more certain and therefore more valuable to the buyer.
Question 3: How does the financial strength rating of the annuity issuer affect the value of structured settlement payments in the secondary market?
- It has no effect — all annuity issuers are federally guaranteed
- Higher-rated issuers produce payment streams valued more highly because there is less risk of default (Correct answer)
- Lower-rated issuers produce more valuable payment streams due to higher yields
- Annuity issuer ratings only affect new settlement creation, not secondary market pricing
Correct answer: Higher-rated issuers produce payment streams valued more highly because there is less risk of default
The financial strength of the life insurance company issuing the annuity affects perceived credit risk; payments backed by highly rated insurers are considered safer and thus worth more.
Question 4: What is 'accelerated funding' in the structured settlement purchase industry?
- Receiving payments before their scheduled due date directly from the annuity issuer
- A service offered by some factoring companies to pay the lump sum faster after court approval (Correct answer)
- A method of increasing structured settlement payments by re-investing them
- An IRS fast-track approval process for transfer petitions
Correct answer: A service offered by some factoring companies to pay the lump sum faster after court approval
Some factoring companies offer to advance a portion of the lump sum before the court approval is finalized, charging additional fees or interest for this early funding service.
Question 5: What percentage of the total face value of payments do payees typically receive as a lump sum in a structured settlement transfer?
- 90–100%
- 75–95%
- 40–70% (Correct answer)
- 10–25%
Correct answer: 40–70%
After applying typical discount rates of 9–18%, payees commonly receive approximately 40–70 cents on the dollar relative to the total face value of the payments being sold.
Question 6: Which of the following structured settlement payment types typically commands the highest lump-sum offer from factoring companies?
- Life-contingent monthly payments beginning 20 years from now
- Guaranteed monthly payments beginning immediately and backed by a highly rated insurer (Correct answer)
- Inflation-adjusted payments from a lower-rated insurance company
- Deferred lump sums payable 30 years in the future
Correct answer: Guaranteed monthly payments beginning immediately and backed by a highly rated insurer
Near-term, guaranteed payments backed by a strong insurer command the highest values because they combine low credit risk, low mortality risk, and minimal time discounting.
Sell Structured Settlement Finding Buyers and Pricing 2
What is the role of a structured settlement consultant or broker who assists a payee in selling their payments?