Structured settlements: Protection during dangerous economic times

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Structured settlements have always been the right choice for safety’, stability and reliability in good times and in bad times. Certainly, the financial crisis that the U S. and global economies are experiencing is a very sobering reminder about the need for safety and stability’. Despite the inundation of gloom and doom financial reports regarding banks, industry leaders and the overall stock market, the settlement industry, and the structured-settlement annuity specifically, remain strong and clear of any sort of negative publicity. In fact, because structured settlement annuities are so well capitalized, reserved and monitored by state and federal regulatory agencies, there has been no concern about their safety and reliability, said Mr. Wade, aLos Angeles business litigation attorney at California Business Lawyer & Corporate Lawyer, Inc.

The National Structured Settlement Trade Association (NSSTA) has provided information on their Web site to claimants and attorneys regarding the financial protection that structured settlements provide, especially during the current economic crisis. One of their pieces of information lists the three types of protection that structured settlements offer:

Life insurance company reserves and surplus

State insurance laws require the establishment of a “reserve” for every obligation undertaken by a life insurance company and strictly regulates a life insurer’s investments, according to a Los Angeles personal injury lawyer. Typically, more than two-thirds of the investments corresponding to a life insurer’s required reserves are held in “investment grade” bonds, with less than five percent in the stock market. Changes in share price or adjustments in credit ratings do not change an insurer’s ability to make its scheduled structured settlement annuity payments.

Even with all of its recent financial challenges, AIG (American General) has never been in danger of defaulting on any of its commitments to annuity holders:

We have a very strong message for consumers: If you have a policy with an AIG insurance company, they are solvent and have the capability to pay claims.

– National Association of Insurance Commissioners (NAIC) President Sandy Prager, news release, 9/16/08

Furthermore, ail companies issuing structured settlement annuities must maintain a “surplus” of additional capital above and beyond the reserve required to meet their obligations.

State insurance regulation

Any life insurance company offering structured settlements in California must obtain and maintain approval from the California Department of Insurance. This approval is contingent upon, among other things, detailed financial reporting that allows regulators to evaluate the solvency and compliance with California’s regulations.

California’s rules provide for the use of more conservative accounting rules, mandatory annual audits, and minimum capital/surplus requirements. Many Los Angeles civil litigation lawyers stated that California insurance regulators also have the right to conduct independent reviews and spontaneous audits to ensure compliance.

In the extremely unlikely event that an insurance company becomes financially troubled, California regulators have authority to take immediate action. If the life company’s existing asset base and business are considered solid, the regulator may choose a restructuring plan. With court oversight, regulators or their appointees will attempt to build capital and clean up the operations, with the ultimate goal of returning the insurer to good standing.

California Life and Health Insurance Guarantee Association

The CLHIGA Web site, provides the following information:

The California Life & Health Insurance Guarantee Association is a statutory entity created in 1991 when the California legislature enacted the California Life and Health Insurance Guarantee Association Act. The guarantee association is composed of all insurers licensed to sell life insurance, health insurance, and annuities in the state of California. In the event that a member insurer is found to be insolvent and is ordered to be liquidated by a court, the Guarantee Association Act enables the guarantee association to provide protection (up to the limits spelled out in the Act) to California residents who are holders of life and health insurance policies, and annuity contracts, with the insolvent insurer.

Specifically, when a member insurer is found to be insolvent and is ordered liquidated, a special deputy receiver takes over the insurer under court supervision and processes the assets and liabilities through liquidation. The task of servicing the insurance company’s policies and providing coverage. California’s resident policyholders become the responsibility of the guarantee association. The protection pro-vided by the guarantee association is based on California law and the language of the insolvent company’s policies at the time of insolvency.

The limit in California is $100,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal value.

Hartford Life Insurance Company has provided a comparison chart of Structured Settlements and Fixed Income Investments. The chart above compares key features of a structured settlement with some of the most common fixed income options and concludes that characterized by minimal risk, tax-free status, and a competitive rate of return, a structured settlement is the most attractive fixed income option available:

Structured settlement annuities will continue to be the foundation of any good settlement plan based on their safety, reliability, and competitive rates of return for the foreseeable future. Claimants are facing choices in whether to receive a lump-sum payment or structure their settlement into periodic payments. I believe a combination of the two is a smart choice in today’s economic times. It would be wise for claimants to have a comprehensive financial plan that will provide cash up front and a guaranteed tax-free stream of income to meet their specific needs.

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