Daily Archive for October 15th, 2007

Recently I have been looking at insurance plans that insure for the loss of employment income. What these plans do is pay you x amount of dollars for every year that you cannot have employment due to the accident that you suffered. Of course, these plans also require regular payments to be made to them while the insured is employed and is usually recommended for employees whose main asset is their ability to work.

When an accident does happen and the conditions are satisfied for a payout, the payout is usually on a monthly basis and hence works somewhat like an annuity which as defined on the U.S. Securities and Exchange Commission’s website is ‘a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date’. Of course, there are also other insurance plans which provide periodic payments upon the satisfaction of certain conditions.

What I wanted to know is whether there is the flexibility to obtain a lump sum payment instead of waiting for the monthly/ annual handout from the insurance company?

I was introduced to this company Settlement Capital that provides liquidity to owners and holders of periodic payments resulting from structured settlements, annuities and even lottery winnings (lottery winnings in the US is typically paid over a certain number of years rather than a one time payment). There are also a couple of other competitors that have emerged in this niche market. What companies like Settlement Capital do is that they buy the annuity payments from the holders of insurance or lottery winnings so that these people can have a lump sum upfront.

If one is interested, they can ask for a free quote and find out how much of the future payments are being discounted in these settlement transactions. However, should there be any emergency need for money or the holders of these annuities are confident of obtaining a higher rate of return elsewhere through receiving the lump sum upfront (versus waiting for 20 years and considering the impact of inflation), then it will make sense to explore this early settlement option.