Structured settlements have grown immensely over the past couple of decades. Though it might come as a surprise for some, but structured settlements industry is more than a hundred billion dollar market on an annual basis, with at least 5 percent growth rate. The popularity enjoyed by these annuity settlements has been unsurpassed. There are many schemes and formats in which annuity payments can be structured. What’s common among all these annuity schemes is that these are funded by top rated insurance firms, and are treated as investment grade assets. This has gone a long way in making these structured settlements very safe financial bets. Irrespective of the going interest rates in the market or the swings observed by the financial markets on a month to month basis, the value of your structured settlements remains same. So, market risks are inherently taken care of in structured settlements. In this article, we try to find out more about the safety considerations you might have with structured settlements, and will exhibit how these annuity payments are the safest financial resources for anybody.
Legal provisions that strengthen structured settlements
The structured annuities’ market is heavily regulated, and strict checks are kept by the authorities on the working of life insurance companies that offer these settlements. Regulations regarding the quality and the type of the investments that a life insurance company can make are in place, and this makes annuity payments pretty risk free. Moreover, all life insurance companies that offer structured annuity payments are required to set aside a balance every time they issue an annuity, thus ensuring that despite the financial health of the company, it has enough in its kitty to meet the structured settlements’ obligations.
Safeguards in case of the bankruptcy of the insurance company
Wouldn’t you want to know how the settlements will be met if the life insurance company offering the annuities goes bankrupt? In such a case, the possibility of whose happening itself is pretty miniscule, the state insurance commissioners help in rebuilding the capital structuring of the company, so that the obligations can be fulfilled. If restructuring of the company is not possible, then the company’s assets will be liquidated, and the policy holders’ obligations will be met first. So, even if the company goes badly bankrupt, you are likely to get the priority in terms of your outstanding payments being provided to you. With all these legal safeguards in place, you have all the reasons to assume that your structured settlements are among the safest assets you have. These annuities ensure that you keep on enjoying a steady inflow of money, with almost no risk to it in the long term. That said, it must also be mentioned that these structured settlements are theoretically not 100 percent risk free, and in the rarest of rare cases, could boil down to the policy holders losing out on about 40 percent of their outstanding payments.
The past two decades have seen massive improvements in terms of security of annuities. State governments have taken massive strides, and have out in place several rules towards ensuring that issuers of structured settlement annuities don’t face insolvency problems. The safeguarding of the annuitants has been a priority with regulator bodies, and several rules have been put into place to protect their interests in the rare case of insolvency of an issuer.
1. The accounting rules that are applicable on the issuers of annuities under structured settlement schemes have been tightened immensely. This ensures that the financial health of the issuer can never be distorted.
2. Risk based capital testing has been imposed on these firms.
3. The issuers of structured settlement annuities are expected to undergo annual audits which are mandatory as per regulations. These audits go a long way in bringing out any indicators of instability of the insurance firm.
4. There are no ambiguous regulations, and issuers of annuities are required to follow crystal clear guidelines in terms of maintaining the standards of their investments, as far as their security is concerned.
5. Minimum capital and requirements of surplus have been clearly laid out
6. The firms issuing structured settlements annuities are motivated to undergo independent reviews in order to strengthen their reputation.
7. Spontaneous audits are carried out in order to ensure that these firms carry out their operations in the expected manner.
Apart from all the aspects mentioned above, you might also be interested in knowing that structured settlements always prove to be totally risk free even when you want to sell them off. That is because all the structured settlement sales are routed through court approvals, and hence, there is absolutely no way you can be coerced into selling your structured settlements.