Secondary Market Annuities - The Current Environment
Today's topic's a good one, and I've been looking forward to talking about this. I get a lot of emails and calls and all this stuff about secondary market annuities, SMAs as they're called in the business. I'm going to talk about the current environment and what you kind of need to look out for, and just as I always do, I strip through the sales pitch, I strip through all of this nonsense that you hear so that you can make an informed decision on your terms and your timeframe. They might be good for you. I don't sell secondary market annuities. I'll explain why.
Where Do They Come From?
Let's talk about secondary market annuities and where they came from. You read about people that are in tragic accidents that they got injured in a trucking accident or something, a truck hit a car, and they get a settlement where a judge says, "Hey, this X company needs to pay this person who got injured a lifetime income stream, et cetera." And it's typically a big amount. That's where the secondary market comes from. It's a structured settlement given to this person, and what that person does is collect the payments, et cetera. It's a good deal. But what happens a lot of times is that the person who got the structured settlement goes back to the judge and says, "You know what? I want to sell a portion of that guaranteed payment for a lump sum." And then it becomes a secondary market annuity.
You probably never heard that, but that's how it works. When someone pitches you as a secondary market annuity, they say, "Well, you can buy this AA plus company, and here's the payment." But here's the catch: a secondary market annuity, when you buy it, when you buy those payments, you don't own anything. You're buying the rights to the payments, and what's happened in the marketplace, attorneys general, you could say attorney generals. Still, attorneys general, and each state has one; there’s a pending lawsuit going on right now for the people that own secondary market annuities from the beneficiaries of the people that sold them.
Let me give you an example. And the reason I know this very well is a very good friend of mine was the top secondary market annuity distributor in the country, and he's out of it. He's out of business because of this pending lawsuit, and it's just messy. Let's just say Jim was in the accident, and Jim went back to the judge, and he sold a portion of those payments off for a lump sum. What's happening right now is Jim's children are going to the judge and saying, "Wait a minute, we didn't approve of that. We want our payments back." And that's where the lawsuit comes in place because I once again said, "Secondary market annuities, you don't own the annuity. You own the rights to the payment." And the lawsuit is all about, "Do you own the rights to those payments?"
Now, it gets messy from there, and you can Google it and read for yourself, but some secondary market annuity payments have been frozen, so people who bought the rights to those payments aren't getting those payments now. You've got to be very on top of it and do your homework on these secondary market annuity payments of which you're trying to buy the rights to those payments. When we look at it as a product category, I'm not putting down the secondary market annuity industry, but the paperwork is cumbersome. It is thick. When my CEO and I looked at it, we're like, "Wow, that is a lot of paperwork for the rights to a payment." And even when we decided not to do it, we're like, "That's messy. That could be messy in the future." And it's kind of turned into that.
That doesn't mean that all secondary market annuities are bad or all secondary market annuities are good. I’m going to shoot straight with you and tell you the facts about these things; you need to be very careful. And if you do decide to buy a secondary market annuity, make it a very, very small portion of your portfolio because of the pending litigation and these attorneys general that are going after these payments on behalf of the beneficiaries of the person that got the structured settlement. I know that's a lot of moving parts, but I think I explained it enough for you to go, "Wait a minute. That sounds too good to be true." And as I always say, "If it sounds too good to be true, it is every single time without exception, especially with annuities."
But let's talk about the structured annuity market in general. I think it's a great market. I think for the individual that's been injured and deserves that compensation, that's fantastic. You've got to go in front of the judge, and the judge says, "Yes, we're going to get you this lifetime income stream." It got messy when, in a capitalist country like ours, somebody said, "Wait a minute, we could buy a portion of those." Let's just say someone's getting $70,000 a month, and they will say, "Well, I don't need $70,000 a month. I need $35,000 a month. We’ll sell the other $35,000 for a lump sum." That's how the secondary market annuity world starts, and from there, it's just gotten a bit messy. Just be careful.
SPIAs and DIAs
I think you're better off buying a Single Premium Immediate Annuity, a Deferred Income Annuity. Why? Because you own the policy. You don't own the rights to anything. You own the policy. And it's better to own the policy than to buy the rights to the payments, so you have two decisions: own the policy or rights to the payments. On the policy, there’s no wiggle room there. I mean, you have it. That's it. Rights to the payments could get a little messy.
We've kind of covered secondary market annuities. I hope I have clarified things for you. If you own a secondary market annuity and want someone to give a good opinion on that, contact me. I have a very good friend that used to be the leader in the industry, and I'm sure he'd be willing to help you with the specifics of what you own. But what I would encourage you to do is probably not buy more and maybe look at a Single Premium Immediate Annuity or Deferred Income Annuity instead, even though it might be a little bit less payment. But once again, you own it, and there's never going to be a problem. You're always going to get your payments.
With secondary market annuities, it could get messy when it becomes political and attorneys generals get involved, and each state's different. It already has gotten messy, and what you don't want in your life, and when you go into the second chapter of your life, which is retirement, you do not want that lifetime income stream to be messy or that specific income stream with that structured settlement secondary market annuity to be messy. Why not just get a Single Premium Immediate Annuity or Deferred Income Annuity? No mess involved. It's a contractual guarantee that you own. The simpler, the better.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.