Structured Settlement Glossary – Key Terms Explained
When you approach structured settlement companies about selling your settlement, your annuity payments or other type of payments, you will encounter some new terms. These phrases may sound like a foreign language to you, which is not surprising since many legal and financial terms have their roots in Latin and medieval French.
Don’t worry: the professionals at CBC Settlement Funding will take every opportunity to clarify these terms for you and make certain you understand everything about the process of selling structured settlements or other payments. To help you get started, here is a glossary of terms you are likely to hear.
Annuity Issuer: Usually, this is the insurer making payments, specifically a life insurance company.
Appearance: In “legalese,” this is a form filed with a court clerk to serve notice that a lawyer (or another attorney, including yourself) is representing you.
Assignee: Refers to the person or entity who is “assigned” payments (or other legal obligations or liabilities). When you sell a structured settlement to a structured settlement buyer or factoring company, that company becomes the “assignee.”
Attachment: A lien on an asset held by a third-party creditor.
Beneficiary: The person who receives structured settlement payments in the event of the annuitant’s death.
Best’s Rating: A.M. Best & Company rates insurance companies on their ability to pay out policyholder claims in much the same way that credit reporting bureaus rate consumers. A Best’s rating consists of a letter, which is the rating itself, and a Roman numeral to indicate the size of the company. So, the highest rating – A++XV or “superior” – suggests a very large insurer that can be depended upon to meet all its obligations.
Bonds: Debt instruments issued by a government or corporate entity for a period exceeding twelve months. The bondholders are repaid over time, with interest. This is how some annuities are financed.
“Cash Now Pusher:” an unethical company or individual who offers “instant cash” to tort litigants. Avoid these people at all costs. An honest and reliable structured settlement buyer will let you know up front that the process cannot be completed immediately and may take up to two months.
Certified Structured Settlement Consultant: Someone with this title is credentialed by the state and has successfully completed 80 hours of training and a rigorous comprehensive examination.
Claim: In law, the relief sought by a plaintiff in a civil suit. In insurance, the form submitted following a loss or injury.
Consideration: The benefit that is negotiated between two parties when entering into a contract. In a structured settlement, this includes the promise to pay the purchase price to the annuitant who is selling structured payments.
Contract: A legal agreement that can be enforced by the court.
Discounted Value: As it relates to structured settlements, a “discounted value” is what factoring companies use to make an offer to a client. What this means is that you will get less than the full value of your annuity payments or structured settlement; the difference is the factoring company’s fee for services rendered. This may also be referred to as an “effective discount rate.”
Factoring: This is the process by which structured settlements or other future payment obligations are transferred to a third party for a Discounted Value.
Guaranteed Benefit: Payments made regardless of whether or not the beneficiary survives the term (see “period certain” below). If the primary beneficiary dies before the end of the period, payments go to a designated heir, the beneficiary’s estate, or Assignee.
Internal Revenue Code: The body of federal laws governing taxes in the U.S.
Irrevocable Trust: A trust in which the creator has surrendered all rights to make changes or amendments. An irrevocable trust is used to protect assets against claims from creditors or other parties.
Judgment (or Court Order): The ruling of the court. As it relates to structured settlements, the decision a judge makes to either approve or deny your request to transfer your structured settlement payments.
Lien: A legal claim against an asset in order to insure the payment of an obligation. This may also be called an “encumbrance.”
Life Contingent Payments: An annuity that continues to pay for as long as the beneficiary is alive. It may also be for a “period certain” (see below). For example, “30 years certain and life annuity” means that annuity payments are guaranteed for no less than 30 years – but will continue should the beneficiary live beyond that time. On the other hand, if the beneficiary dies before the 30 years are up, the payments cease.
Lifetime Payments: Annuity payments that are guaranteed until the death of the beneficiary.
Lump Sum Annuity: An annuity that makes a single lump sum payment or increasingly larger payments (“balloon payments”) in the future.
Non-qualified Structured Settlement: These are periodic payments that are not part of a personal injury settlement, such as punitive damages.
Obligor: The party owing money to another as the result of a judgment or court settlement.
Period Certain: A pre-determined period of time during which structured payments are to be made, regardless of whether or not the beneficiary dies during that period.
Policy Limit: The most an insurer is obligated to pay for a specific claim. This limit is specified in the declarations sheet.
Present Value: Also known as “net present value, this refers to the value of a future structured income stream in today’s dollars. It is used in determining the discount rate of a structured settlement or annuity.
Qualified Assignment: This is when the original party making payments to a lawsuit claimant or beneficiary transfers, or “assigns” those payment obligations to another party under regulations set forth in the Internal Revenue Code.
Risk: This refers to the possibility that an asset or investment will not perform to expectations. Factoring companies such as CBC assume a certain amount of risk when they purchase the right to receive structured settlement payments.
Settlement Agreement: The legal contract between parties to litigation specifying how much and under what conditions the defendant must provide relief to the plaintiff.
Settlement Annuity: This provides for structured payments over time for a successful plaintiff in a lawsuit.
Time Value of Money: The value of money earning interest over a period of time. For example, if you were to invest $10,000 today at an annual 5% interest, it would be worth $10,500 in 12 months. Therefore, your $10,000 has a future value of $10,500 and a present value of $10,000. This is taken into consideration in structured settlement transactions, as it permits the factoring company to determine the present value of an income stream.