Applicants Seeking Insurance Required by a Structured Settlement Buyout Company
We’ve gotten 3 calls in the last month from prospective applicants needing life insurance, required by a structured settlement buyout company. The settlor pays lump sums in exchange for pension income. All 3 have said they need a 10 year term, and knew the exact amount they needed, and needed the buyer get the collateral assignment.
Perhaps you’ve seen J.G. Wentworth commercials before where they ask you if you’re receiving a fixed income stream or annuity payout, and how if you call them, they can offer you a lump sum in exchange for your annuity. Of course I’m familiar with these settlements, but have never heard of the concept where the settlor requires life insurance on the seller.
So did a bit of digging. Naturally, my first source or research was to Google the term “Life insurance for structured settlement buyout.” I found multiple hits from multiple structured settlement companies, all basically saying the same thing… these companies will buy your pension or income stream either for life or for a period of time, but all of them that I saw require life insurance.
One site explained:
“During the pension period (the time period you sell; for instance, selling 96 $500/month payments would be an eight-year pension period) you will be required to carry a life insurance policy as collateral. If you don’t yet have life insurance, we have licensed, independent agents ready to assist you in securing coverage.”
In the frequently asked questions, you find the reason they require life insurance.
“Much as lenders require homeowner policies on mortgages, we require a life insurance policy be in place before approving a pension sale. Understandably, if the pensioner passes away all payments to us will cease; a life insurance policy helps us protect the integrity of our relationship with you.”
I was a critic when I first heard the concept, but now I’m in discovery mode. If there are any agents out there reading this article, and you have successfully placed a case for the purpose of collateral for a structured buyout, please comment and let me know if the carrier had any questions about the purpose of insurance or establishing an insurable interest.
I also interviewed a gentleman at the Lump Sum Settlement Store (link below), who said this is a new industry that just popped up 2 years ago when the Pension Protection Act was changed, and now tens of thousands of these deals are being done per year. So it seems it could be legit.
Below I’ll list the webpage I quoted above.