Secondary Market Annuities
Secondary Market Annuities (SMA’s) are a safe and secure way to create an income stream either immediately or at some point in the future. The payments come from brand name, A-rated or better, insurance companies. These types of financial tools have traditionally only been available to institutional investors and hedge funds however, over the past several years, they have become available to private investors. A better description of a Secondary Market Annuity is the transfer of future structured settlement payments. The Seller was typically a plaintiff in a lawsuit who won a judgement due to either medical malpractice, personal injury, or wrongful death, etc. The defendant who lost the case previously purchased an annuity to pay the plaintiff who is currently receiving a defined number of future payments or future lump sums. Those future payments are transferred to the "Buyer" at a discount. Once a judge determines that the transfer of those payments are in the best interest of the "Seller", the "Buyer" then starts to receive the defined future payments or lump sums which they purchased at a discount. The discount is the key to higher than normal returns.
A man and his family are driving to a movie one night. His car stalls on the railroad tracks and they are hit by an oncoming train. He and his wife are injured and one of the children are permanently disabled. He can't work and they have bills to pay. The accident devastates this family. They sue the car company and the railroad and receive an annuity settlement consisting of monthly payments for the next 20 years. The victory for the family is bittersweet in that they receive some money, but it isn't enough for them to get back on their feet. They need a lump sum of money now to make ends meet.
You save the day!
You are savvy in that you have saved money for your retirement. You have the ability to make in informed decision and have the liquidity to jump on an opportunity if it presents itself. The family in this scenario needs cash now. You give them the cash they need in exchange for their annuity payments. There are several reasons you do this. You offer them a discounted cash price in exchange for their payments. Your return on investment can be up to 7% in today's market, way above traditional investments. Your payments are re-assigned by a judge and a court order. Your payments are guaranteed by an A to AAA rated brand name insurance company. You are a shrewd investor, but you like the idea of helping people who are in need. This investment opportunity is called purchasing a Secondary Market Annuity, also known as an In Force Annuity.
High Rates of Return
The rates of return are very high, sometimes more than double what current rates compared to CD's or Fixed Annuities. The most important thing to understand about these unique opportunities, is that they are singular in nature, meaning each one has its own set of circumstances, parameters, interest rate, length of payout, purchase price, payments, etc.
Safe, Secure Income Get up to 7% on your money
How can I get up to 7% guaranteed on my money?
If you take the traditional approach to investing, YOU CAN'T. If you are reading this, you already know current interest rates don't touch 5%, and banks don't pay more than 2%. However, there are safe, secure opportunities that until recently, have only been available to institutional investors like banks and trust companies.
Reasons To Buy A Secondary Market Annuity
- Safety - Imagine a company rated A to AAA that is court ordered to pay you every month for a certain period of time.
- Higher interest rates than current market conditions - Because someone else needs cash today, they are willing accept a lower lump sum than what their original payments would be if they waited. The DISCOUNTED investment you make for the same number of payments means higher yields.
- Simplicity - SMA's have no moving parts. The interest rate is fixed and guaranteed. The payments are fixed and guaranteed. There are no market fluctuations, no annual fees, and no administrative fees
- Tax Advantages - On some cases, the company making the payments does not send a 1099 to you....use your imagination. I am not an accountant, or a lawyer, so don't take this as advice.
- Feels good knowing you helped someone - Most SMA's are the result of a lawsuit stemming from an injury or negligence. The victims were awarded a settlement, but have bills or outstanding circumstances that require more cash than their monthly payments from the settlement. When you purchase a SMA, you are helping people who need the help and can't get it anywhere else. You are doing a good deed. Are there any investments your broker has talked to you about that don't line the pockets of corporate executives?
Reasons To Not Buy A Secondary Market Annuity
- No Liquidity - Once you purchase a SMA, you are bound by the terms and conditions of the court order. Once the judge assigns you the payments, that's what you are going to get. You can't withdraw cash if you need to, so make sure you have other assets for liquidity.
- Interest Rates Go Up - If interest rates go up, and that is a BIG IF, there is the potential that if you had waited, you might have been able to get higher yields down the road.
- You don't play it safe with your money - If you like the dramatic up's and down's of the stock market, the volatility of commodities or futures markets, or if you are a risk taker, this is not going to be a good fit for you. Call your broker immediately and tell him you thought about playing it safe for once, but realized it just isn't in you.
- You can't find a SMA that meets your needs - Like snowflakes, each SMA is different. The payments, the initial investment, and the terms for each SMA are unique and no two are alike. You may have to ladder several SMA's to achieve your financial goals. Please share with us you goals and objectives, so we are able to put together a plan that completely satisfies your needs.
- There is a risk of the judges order getting vacated. This is highly unlikely, and you can purchase insurance to prevent it at a cost. Please do some research before you purchase someone else's structured settlement. If this were to happen to you, and you didn't purchase the insurance against such an occurrence, there is a chance you would not receive all of the payments you purchased.
- What the SEC says about SMA's