Sell Structured Settlement Structured Settlement Basics 2 — Questions and Answers
Question 1: What term describes the entity that originally owed payments under a structured settlement?
- Assignee
- Obligor (Correct answer)
- Payee
- Annuitant
Correct answer: Obligor
The obligor is the party — typically an insurance company — legally obligated to make the periodic structured settlement payments.
Question 2: Which party in a structured settlement is the person entitled to receive the payments?
- Obligor
- Annuity issuer
- Payee (Correct answer)
- Factoring company
Correct answer: Payee
The payee is the individual (usually the injured plaintiff) who is entitled to receive the periodic structured settlement payments.
Question 3: What does it mean when a structured settlement includes a 'life contingent' payment?
- Payments stop if interest rates change
- Payments continue only as long as the payee is alive (Correct answer)
- Payments are adjusted for inflation annually
- Payments are guaranteed regardless of any conditions
Correct answer: Payments continue only as long as the payee is alive
Life-contingent payments cease upon the death of the payee, meaning the stream of income is tied to the payee's survival.
Question 4: A 'guaranteed' period in a structured settlement means:
- Payments will increase each year
- A set number of payments will be made regardless of whether the payee lives or dies (Correct answer)
- The insurance company guarantees high returns
- The government insures the payments
Correct answer: A set number of payments will be made regardless of whether the payee lives or dies
A guaranteed period ensures that a specific number of payments will be made to the payee or their estate even if the payee dies before the period ends.
Question 5: Which federal law specifically governs the assignment of structured settlement payment rights to a factoring company?
- The Structured Settlement Protection Act
- The Internal Revenue Code Section 5891 (Correct answer)
- The Securities Exchange Act
- The Fair Debt Collection Practices Act
Correct answer: The Internal Revenue Code Section 5891
IRC Section 5891 imposes a 40% excise tax on factoring companies that purchase structured settlement payments without obtaining a qualifying court order.
Question 6: What is the primary purpose of anti-assignment clauses found in many structured settlement agreements?
- To protect the insurance company from investment losses
- To prevent the payee from selling or transferring payment rights (Correct answer)
- To require court approval for payment increases
- To allow the defendant to reclaim overpayments
Correct answer: To prevent the payee from selling or transferring payment rights
Anti-assignment clauses are intended to protect the payee's long-term financial security by restricting the transfer of payment rights to third parties.
Sell Structured Settlement Structured Settlement Basics 2
What term describes the entity that originally owed payments under a structured settlement?