Popular Financial Terms
Below is a list of the most popular financial terms in the structured settlement and annuity industry.
- Accumulated Value
- The full amount of the annuity contract. It’s the combination of principal and any increase.
- A person who specializes in risk mathematics used to calculate premiums, reserves and rates for insurance companies.
- The person who receives annuity payments and is considered the measuring life for a life annuity. In structured settlements, the annuitant is the plaintiff or claimant who receives the settlement and/or other persons who have claims to the payments such as a spouse.
- When an annuity investment is converted into periodic payments.
- A financial product used to grow money in order to give the annuity owner or annuity payee a constant stream of future payments. Paid for a specific time period such as 20 years or annuity owner’s life time, they’re paid in fixed monthly, quarterly or yearly payments.
- Annuity Table
- Used to figure out the present value of a series of payments such as when you sell your future annuity payments. Based on time and a discount rate, the annuity payment can be multiplied to determine its present value.
- Annuity Transfer
- When you sell some of your future payment rights for a cash lump sum payment, you are transferring the rights to those future payments to a third party otherwise known as a factoring company. This is known as an annuity transfer or factoring transaction.
- An asset is anything tangible (cash, real estate, gold, inventory, stocks, bonds, annuities) or intangible (copyrights, trademarks, patents) a person, company or country owns of value.
- Attorney Fee Structure Annuity
- An annuity set up to pay attorneys who are owed legal fees from a personal injury case settlement.
- Automatic Clearing House (ACH)
- ACH is a nationwide network of financial institutions or banks that allows them electronically transfer money to each other.
- In a personal injury case, the award is the amount of money given to an injured party. The award is often determined by a judge, arbitrator or jury.
- A beneficiary is a person who receives an asset when the owner dies such as an annuity or 401k.
- Best Interest Standard
- When selling future payments for a cash lump sum, the Internal Revenue Code Sec. 5891 and most states require that the transaction be in the best interest of the seller. While the standard is open to interpretation by the ruling judge it must consider the support of any dependents.
- A condition added to a structured settlement annuity contract that allows the beneficiary to get a lump sum payment instead of continuing the annuity payments. This option must be set up at settlement time and a life insurance company usually charges a fee for this option.
- Compensatory Damages
- Money awarded to a plaintiff in civil court cases to pay for the replacement of what was lost, and nothing more.
- Court Order Attorney
- The attorney who files the petition for court approval of an annuity transfer when you sell your structured settlement or annuity payments for a cash lump sum.
- Daily Rate
- A special form of structured settlement annuities pricing based on the daily market conditions. Typically a daily rate is only valid for 24 hours so it could be better or worse than book rates.
- Deferred Annuity
- An annuity whose payments do not start immediately is referred to as a deferred annuity. Used for retirement, they’re subject to a 10% tax penalty for withdrawals prior to age 59 ½. This rule does not apply to structured settlement annuities.
- When prices decline because of a decrease in the supply of money or credit as well as a decrease in spending. To stabilize the economy, the government will increase the money supply and raise prices causing inflation. Deflation decreases profits, increases unemployment, lowers incomes and increases loan defaults.
- The act of spending money. When you buy something at the store, receive interest on a savings account, pay for medical expenses or receive money from your insurance company, this is considered a disbursement.
- The process of reversing the value of the future payments back to the present value of the money today.
- Anything of value owned by an individual including money, investments, land, real estate, vehicles, life insurance policies, personal property, structured settlements, annuities, antiques and paintings.
- Estate Planning
- When you prepare for the administration and distribution of your assets such as cash, annuity payments and real estate as well as liabilities such as mortgages or liens when you die. Such preparations include the creation of wills and/or trusts.
- Estoppel Attorney
- An attorney representing the seller when you sell your structured settlement for a lump sum payment. Acting as an adviser, they protect the seller’s best interest.
- A corporation that insures bank deposits up to $250,000 per institution. The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if they were bought at a bank.
- Factoring is when a person sells the rights to their future annuity payments to a factoring company, annuity purchaser. The seller receives a cash lump sum payment at a discounted rate.
- Gross Advance Amount
- The whole payment given to the seller of a structured settlement annuity when they transfer their payment rights. This amount is before any expenses or other deductions are taken.
- A person legally responsible for the care and management of a person or property of an incompetent or a minor.
- IRC 104(a)
- A clause of the Internal Revenue Code that exempts physical injury recoveries from gross income even if the money was paid in a lump sum instead of future periodic payments. While the code doesn’t specifically mention structured settlements, if your settlement was a result of a personal injury this clause should apply to your situation.
- IRC 5891
- Part of the Internal Revenue Code requiring all structured settlement factoring transactions be approved by a state court and follow its statutes. The transfer must be in the best interest of the seller and their dependents. If the factoring company does not follow the procedures outlined by the state, they must pay a 40% tax on the difference between the value of the future payments sold and the amount paid to the seller.
- An asset such as a house, annuity or other investment product that cannot be sold quickly or easily without taking a loss because of shortage of buyers. Traditionally annuities and structured settlements were considered to be illiquid assets however factoring companies can turn them into cash by purchasing the payments.
- Immediate Annuity
- An annuity with a payout period that begins right away or within a year of the purchase date.
- Inflation Rate
- The annual percentage increase of prices for goods or services. Tied to the Consumer Price Index, as inflation rates increase the value of the dollar weakens causing a decrease in buying power.
- Internal Revenue Code (IRC)
- Referred to as the tax code they are the laws that govern the United States tax system. The IRC contains several provisions regarding personal injuries and structured settlements.
- Life Care Costs
- Future medical and non-medical costs incurred because of a catastrophic personal injury including medications, medical treatments, rehabilitation training, special education, special housing requirements, special vehicle requirements, personal attendant care and other expenses made necessary because of an injury.
- The ability to convert property and investments into fast cash without losing a considerable amount of value. Many financial experts believe that if you can convert the asset into cash within 20 days it is considered a liquid asset. Some examples of liquid assets are mutual funds, money market accounts, savings accounts, structured settlements and some life insurance policies.
- A game of chance decided by a drawing. Players will typically pick numbers and win prizes, such as money, based upon how they match the numbers drawn. Winners have the choice of taking the cash in lump sum payout or in annual installments from an annuity.
- Lump Sum
- When you receive all your money at once, instead of in smaller installments.
- Non-Qualified Assignment (NQA)
- A form of settlement used in structured settlement cases that does not fall within the definition of personal physical injuries under IRC 104(a) such as age discrimination, ADA violations, race discrimination, wrongful termination, worker’s compensation and sexual harassment. In addition, they may be used for the sale of highly appreciated property, businesses or divorce settlements. When done properly, these assignments result in annuitant’s money being put into an annuity pre-tax and tax deferred.
- Notary Public or Notary
- A person legally empowered by the state to witness and certify the validity of documents as well as take affidavits and depositions.
- Partial Purchase
- When you sell only a portion of your structured settlement or annuity payments for a cash lump sum.
- The person who receives annuity payments from a structured settlement. This person is also called the annuitant or measuring life.
- Period Certain Annuity
- An annuity with guaranteed payments that are made for a specific time period and then stop. They are not life contingent.
- Periodic Payments
- When you receive money in a series of payments from an annuity, structured settlement or qualified retirement plan for a specific time.
- Personal Injury Lawsuit
- A court case where an injured party sues a third party for bodily or other injuries. When caused by an accident or negligence, the injured person tries to recover medical and hospital costs as well as compensation for pain and suffering.
- Present Value
- Present Value is how much a future sum of money is worth today.
- Qualified Assignee
- A Qualified Assignee is a company who has a legal obligation to make future payments from an annuity.
- Qualified Assignment
- A document that makes an assignment of the obligation to make future periodic payments as part of a structured settlement which satisfies the requirements of Internal Revenue Code (IRC) § 130. The document is entered by the assignor (party making the assignment) and the assignee (party accepting the obligation). A qualified assignment is used in personal physical injury structured settlements that fall within Section 104(a) of the IRC treatment.
- Rated Age
- A discount life insurance companies applied to structured settlement annuities when an annuitant has a reduced life expectancy. Since a shorter life expectancy means reduced cost for lifetime annuity benefits they can provide a discount.
- Settled Claim
- When a structured settlement is used to resolve a legal claim.
- Show Cause Order (an order to show cause)
- Requires that a person or corporation show up in court to explain why the court should not allow a particular action. These orders are generally used in contempt actions, injunctions or time sensitive situations. They are also used in NY Structured Settlement Protection Act, which requires that all interested parties appear in court.
- Structured Settlement
- A financial arrangement that allows court-awarded compensation to be paid in regular installments rather than in one lump sum. These payments provide money for a fixed period or lifetime and are usually paid via an annuity.
- Structured Settlement Factoring Transaction
- When a person sells the rights to their future structured settlement payments for a cash lump sum to a third party known as a factoring company.
- Surrender Fee or Surrender Charge
- A fee charged by a life insurance company to the annuity or life insurance policy owner because they made an early withdrawal or cancelled their agreement. The fee, used as an incentive for owners to remain in their contract, reflects insurance company expenses and administrative costs. Typically these fees decrease over time however the surrender charge periods typically last for approximately seven years. After this period has expired owners are free to withdraw funds with no charge.
- A legal claim based wrongful act that results in an injury to a person, their property or their reputation for which the injured party is compensated.