A structured settlement annuity is a specialized annuity issued by an insurance company as part of a structured settlement as a way to compensate the plaintiff in a personal injury lawsuit over a certain period of time.
The settlement helps injured victims (plaintiffs) and their families obtain financial security so they are in a better position to pay medical bills, cater to household bills and expenses, repay their debts, repair/renovate their houses, fund college education, including others.
How Much are the Structured Settlement Annuity Rates?
The interest rates for a structured settlement annuity are usually determined by the current market and also what the insurance company is willing to accept as a return for their purchase while taking various annuity attributes such as the insurance company credit rating, annuity term, and average life into consideration.
In other words, there is no definitive structured settlement annuity rate. All in all, the interest rate is often represented as an “effective rate” that is compounded on a 365-days year. As a standard practice, the interest rates are recorded to an accuracy of 2 decimal places, say 6.14%.
What are the Factors Affecting the Interest Rates for a Structured Settlement Annuity?
In most cases, interest rates on structured settlement annuities are higher compared to those purchased directly from the insurance company. This happens for two reasons.
One, when the settlement broker purchases the annuities at a discounted price from the existing annuitants, the rates can be passed on to the buyers, increasing the overall rates a well.
Two, the annuities may have been previously owned with attributes such as payment amounts, payment terms, and average life- and these cannot be changed whatsoever. This means that if the annuities came with high-interest rates, these rates will be passed forward.
# Annuity Interest Rates and the Economy
Interest rates for structured settlement annuities fluctuate depending on the current state of the economy.
If there is inflation, the interest rates are bound to increase. On the other hand, the rates might decrease when the economy is stable.
To anticipate economic fluctuations, the involved parties can structure the annuities in such a way that payments increase over time, usually 3% annually.
This approach is usually more suitable for younger injured parties with years of annuity payments ahead. For individuals aged 50 and above, these fluctuations may not affect their payments due to their shorter life expectancy.
# Fixed and Variable Annuity Rates
A structured settlement annuity may be issued based on a fixed or variable rate. The insurance company basically assigns the rate based on the current economy as well as the type of contract you decide to purchase.
When you choose a fixed annuity, the rates basically remain stable, which protects you from economic fluctuations. On the other hand, with a variable annuity, the rates fluctuate depending on the current market situation. This means that how much you receive annually will depend on the current rates.
Be sure to consult your attorney who will advise you on the best option to take.
# Annuity Sales and Interest Rates
When the interest rates on the market increase, the annuity sales rise as well. This simply means that if you are selling your annuities, you may achieve bigger gains compared to when the interest rates are low. High-interest rates also translate to bigger gains for the investors.
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