Looking into selling a structured settlement and need some advice

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jimb_fromATL
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Re: Looking into selling a structured settlement and need some advice

Post by jimb_fromATL » Wed Jun 28, 2017 11:13 am

Tanelorn wrote: ...maybe it's worth checking what S&P has to say about said company's very long term unsecured debt? That would give a better idea of the credit risk involved.
It's a sure thing that the company making the lump sum buyout offer has checked out the insurance company very carefully and found that it is extremely likely to be able to pay it out ... else they would not be offering nearly as much for the annuity.

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Grt2bOutdoors
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Re: Looking into selling a structured settlement and need some advice

Post by Grt2bOutdoors » Wed Jun 28, 2017 11:17 am

:?
Tanelorn wrote:
Grt2bOutdoors wrote:Bankrupt perhaps but where the policyholder lost? Far and few, very few indeed. Otherwise no one would have confidence in purchasing all sorts of insurance policies, failure to pay valid claims? Just does not happen.
Do you think OP, who may have won a legal settlement from an insurance company, is a "policy holder"? It seems to me he is probably an unsecured creditor, in line in event of a default or impairment behind both the policy holders and the secured bondholders. Sure insurance companies have nice credit ratings for their policy holders, but maybe it's worth checking what S&P has to say about said company's very long term unsecured debt? That would give a better idea of the credit risk involved.
The likely scenario is the OP won the settlement from a company whose risk was transferred to an insurance company via a policy that was paid for by the defendant. Since the defendant settled, it is the policy that the payments are being made from, not the operating insurance company itself. What is important are the claims paying ability of the insurance company - it is that rating that is more important. Don't confuse where the risk lies, the risk is with the policy where there are specific reserves to back the claims. It's no different when an individual who owns a life insurance policy becomes deceased - if the insurance company was Pruco Life of NY, and the parent is The Prudential Insurance Company of America, the risk lies not with the parent, but with that of the underwriting insurance company, Pruco Life of NY. That is where the insurance block lies. Those entities are highly regulated by the states, and I emphasize, "highly".
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Tanelorn
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Re: Looking into selling a structured settlement and need some advice

Post by Tanelorn » Wed Jun 28, 2017 11:47 am

JDCarpenter wrote:
Tanelorn wrote:...
Do you think OP, who may have won a legal settlement from[a tortfeasor who paid the settlement via purchasing an annuity from] an insurance company, is a "policy holder"? ...
FTFY. And, in my experience, yes.
Grt2bOutdoors wrote:The likely scenario is the OP won the settlement from a company whose risk was transferred to an insurance company via a policy that was paid for by the defendant...
JD and Grt2bOutdoors - thank you for the clarification on how these settlements are typically structured. If he's a policy holder, I agree that the credit risk seems very low. He may have interest rate and inflation risks, but those are no different than anyone who held a long term, bond-like asset.
jimb_fromATL wrote:It's a sure thing that the company making the lump sum buyout offer has checked out the insurance company very carefully and found that it is extremely likely to be able to pay it out ... else they would not be offering nearly as much for the annuity.
Well sure, the buyers know the risks they're taking and are getting a discount / better rate when they buy it off an individual. But it's also a small fraction of their risky portfolio, while OP has nearly 100% of his assets tied up in this future payout. There's a case for diversification even if you think the deal is "fair" (or not too unfair), in the same way you don't want tons of money in company stock.

But from the sound of the comments above, this could be a much less riskier structure than company stock so maybe it's not so important. I know, I worry too much about risks.

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czeckers
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Re: Looking into selling a structured settlement and need some advice

Post by czeckers » Wed Jun 28, 2017 12:37 pm

Another way to look at it:

$1M invested in a balanced portfolio of stocks/bonds gives you a safe withdrawal rate of 3-4% (probably closer to 3% if you're looking at a 40 year time frame). That's $30-40,000 per year, increasing with inflation. There is also some risk of running out of money. You will also pay taxes.

It seems to me, that your settlement is a much much better deal to keep. Once you begin receiving payments, you can use either those, or your ongoing income to invest in rental properties if you like. If you use the settlement money, each year, you would be able to buy a $250,000 property. (Use $50,000 to pay 20% downpayment, mortgage rest). After 10 years, you can have 10 properties worth $2.5M, and still have the guaranteed income from the settlement.

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Tamarind
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Re: Looking into selling a structured settlement and need some advice

Post by Tamarind » Wed Jun 28, 2017 12:53 pm

I am not expert on calculating the value of the settlement.

But if you want to go into business, I would consider the value of the settlement to you in terms of being able to step away from a day job, take risks, and fail without worrying that you will go hungry. For that reason, I would not sell it if I were in your shoes.

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Abe
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Re: Looking into selling a structured settlement and need some advice

Post by Abe » Wed Jun 28, 2017 1:00 pm

I invested in owner financed mortgages as well as other income stream investments for years. An individual who had seen my ad called me with a structured settlement he wanted to sell. I made him an offer that gave me a very high yield and he accepted. It didn't work out because I wasn't familiar with buying structured settlements and the insurance company told me they couldn't transfer the settlement to me. Later the seller of the settlement called me and said he sold it to a company and they gave him less than I had offered him. He said they had to go to court to get the insurance company to transfer the settlement to them. I did not know how to do that so I missed that deal. There are a lot of people out there who buy structured settlements. They don't buy them unless it is a very good deal for them. If I had a settlement like the OP has, I would not sell it.
Slow and steady wins the race.

Admiral
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Re: Looking into selling a structured settlement and need some advice

Post by Admiral » Wed Jun 28, 2017 1:08 pm

See if the'll give you $2m! They already raised their initial offer. Also there are lots of structured settlement co's out there, so if you really want to sell (and I agree with others that it seems like a very poor deal) you might as well see what the market value of the settlement is.

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jimb_fromATL
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Re: Looking into selling a structured settlement and need some advice

Post by jimb_fromATL » Wed Jun 28, 2017 1:18 pm

Admiral wrote:See if the'll give you $2m! They already raised their initial offer. Also there are lots of structured settlement co's out there, so if you really want to sell (and I agree with others that it seems like a very poor deal) you might as well see what the market value of the settlement is.
I doubt that many investors who have a two million bucks to invest would be willing to tie it up for the 2.4% or so annual return on their investment that would give them for the next 45 years.

jimb

inbox788
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Re: Looking into selling a structured settlement and need some advice

Post by inbox788 » Thu Jun 29, 2017 1:55 pm

Liberty1100 wrote:Take a look at the tax implications. These payments will forever (until taxes change) be tax free from state, federal and income taxes (from what I just googled, check a CPA on that). I would take that to the bank and don't sell. If you did sell and that $1million because invested, all of those earnings are taxable, or worse, it becomes only $100k. Don't do it!

Now that you have those payments no matter what, you can be a little more risky with your investments or other cash if you would like. Maybe move around other budgets to get you the cash you want. Maybe you can adjust your 401k or retirement savings to a lower amount.
Yes, I was going to inquire about tax implications. It may turn out to be the biggest decision factor besides risk alteration.

OP, was is your exit strategy with regard to the real estate business you're getting into? What is the timeframe? Where will you be in 10 years if you use conservative assumptions? What are your conservative assumptions? What happens if your real estate property achieves zero appreciation in 10 years?

There are 2 questions being asked, first, are you getting a fair value on your structured settlement? And that depends on the market for it. Did you inquire and seek out a quote, or did they come knocking? Do you have competing offers? Is there an offer from the company holding the settlement?

The other question is whether it makes sense for you to invest in a real estate business. If this is your only option, and the prospects are excellent, then take the risk. But if there are less risky ways of getting there or the risk/benefit not very favorable, then you have to ask yourself if it's worth stepping away from a secure income stream.

Gill
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Re: Looking into selling a structured settlement and need some advice

Post by Gill » Thu Jun 29, 2017 6:01 pm

JDCarpenter wrote:
Tanelorn wrote:...
Do you think OP, who may have won a legal settlement from[a tortfeasor who paid the settlement via purchasing an annuity from] an insurance company, is a "policy holder"? ...
FTFY. And, in my experience, yes.
Correct. This isn't the result of a judgment against the insurance company. This is the result of a settlement or judicial decision requiring the structured settlement to be purchased from an insurance company.
Gill

TOPSZN
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Re: Looking into selling a structured settlement and need some advice

Post by TOPSZN » Fri Jun 30, 2017 2:27 pm

Thanks for the feedback and responses everyone. That is why I came here in the first place.

To give everyone an update...

I am not going to be selling it. Over the past week, the offer went up to 1,250,000. It bottomed out there as a takeout or leave it.

I am leaving it.

To play devil's advocate and get some more opinions on this. What number would you all have needed to make the sell worth it?

Thanks everyone!

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Re: Looking into selling a structured settlement and need some advice

Post by Grt2bOutdoors » Fri Jun 30, 2017 2:31 pm

TOPSZN wrote:Thanks for the feedback and responses everyone. That is why I came here in the first place.

To give everyone an update...

I am not going to be selling it. Over the past week, the offer went up to 1,250,000. It bottomed out there as a takeout or leave it.

I am leaving it.

To play devil's advocate and get some more opinions on this. What number would you all have needed to make the sell worth it?

Thanks everyone!
Nothing less than $2 million, $2.5 million is even better - but these money grubbers aren't going to offer you that, they are as greedy as you can get!
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a5ehren
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Re: Looking into selling a structured settlement and need some advice

Post by a5ehren » Fri Jun 30, 2017 3:20 pm

Grt2bOutdoors wrote:
TOPSZN wrote:Thanks for the feedback and responses everyone. That is why I came here in the first place.

To give everyone an update...

I am not going to be selling it. Over the past week, the offer went up to 1,250,000. It bottomed out there as a takeout or leave it.

I am leaving it.

To play devil's advocate and get some more opinions on this. What number would you all have needed to make the sell worth it?

Thanks everyone!
Nothing less than $2 million, $2.5 million is even better - but these money grubbers aren't going to offer you that, they are as greedy as you can get!
Yeah, the number I had in mind was in the 2-2.5 range as well.

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steadyeddy
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Re: Looking into selling a structured settlement and need some advice

Post by steadyeddy » Fri Jun 30, 2017 3:22 pm

TOPSZN wrote:Thanks for the feedback and responses everyone. That is why I came here in the first place.

To give everyone an update...

I am not going to be selling it. Over the past week, the offer went up to 1,250,000. It bottomed out there as a takeout or leave it.

I am leaving it.

To play devil's advocate and get some more opinions on this. What number would you all have needed to make the sell worth it?

Thanks everyone!
It's a great question. My family has a history of longevity, so I just can't imagine selling it at any realistic discount rate. People usually pay a premium to protect themsemves from longevity risk in the form of an annuity. Why would I give someone a discount on the cash flow just to lose that longevity insurance?

Someone with a high risk of heart disease might have a much lower number, more in line with the guaranteed payout--something more like $1.9M based on the conservative way I would calculate present value. But again, you're essentially paying someone to take away a valuable insurance benefit. Unless you NEED cash, what's the point?

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Abe
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Re: Looking into selling a structured settlement and need some advice

Post by Abe » Fri Jun 30, 2017 4:39 pm

steadyeddy wrote:
TOPSZN wrote:Thanks for the feedback and responses everyone. That is why I came here in the first place.

To give everyone an update...

I am not going to be selling it. Over the past week, the offer went up to 1,250,000. It bottomed out there as a takeout or leave it.

I am leaving it.

To play devil's advocate and get some more opinions on this. What number would you all have needed to make the sell worth it?

Thanks everyone!
It's a great question. My family has a history of longevity, so I just can't imagine selling it at any realistic discount rate. People usually pay a premium to protect themsemves from longevity risk in the form of an annuity. Why would I give someone a discount on the cash flow just to lose that longevity insurance?
I agree with the above. In the long run you will be glad you didn't sell it.
Slow and steady wins the race.

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Re: Looking into selling a structured settlement and need some advice

Post by Vanguard Fan 1367 » Sat Jul 01, 2017 12:25 pm

Abe wrote:
steadyeddy wrote:
TOPSZN wrote:Thanks for the feedback and responses everyone. That is why I came here in the first place.

To give everyone an update...

I am not going to be selling it. Over the past week, the offer went up to 1,250,000. It bottomed out there as a takeout or leave it.

I am leaving it.

To play devil's advocate and get some more opinions on this. What number would you all have needed to make the sell worth it?

Thanks everyone!


It's a great question. My family has a history of longevity, so I just can't imagine selling it at any realistic discount rate. People usually pay a premium to protect themsemves from longevity risk in the form of an annuity. Why would I give someone a discount on the cash flow just to lose that longevity insurance?
I agree with the above. In the long run you will be glad you didn't sell it.
I agree with that too. It sounds like you have a great investment for the future and I applaud your willingness to turn down some cash now in return for a lot more in the future.

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dratkinson
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Re: Looking into selling a structured settlement and need some advice

Post by dratkinson » Sat Jul 01, 2017 6:43 pm

Late to the topic. Agree with OP's decision to keep the structured settlement. Suggest it be treated like a windfall.
See: https://www.bogleheads.org/wiki/Managing_a_windfall



Sidebar. Interesting topic. I wondered what structured settlements went for after seeing lots of TV ads to buy them. Now I know: 25-30-cents on the dollar. ($1M/$4M. $1.2M/$4M.)

Recall lottery winners who take a lump sum can expect to receive ~30-cents on the dollar after taxes.

Would think a tax-free settlement should be worth more than taxed lottery winnings.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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