In many ways, a life contingent case has MORE elements of safety and guarantee than traditional guaranteed settlement annuities. Here’s why.
A life contingent secondary market annuity simply means that the payments due to the seller – and thereby due to you as a new buyer – depend on the seller’s life. If the seller dies after you buy the payments, the payments will cease to be made by the insurance company.
But here’s where it gains in value- To make this a safe investment for you, life insurance is purchased on the life of the seller that will pay you any amount due to you under the remaining terms of your assignment contract.
So not only is your principal safe and guaranteed by the annuity issuing company, its ALSO guaranteed by the life insurance company. It’s a DOUBLE guarantee!
Life contingent cases are often compared to a callable bond- if the bond issuer decides to prepay, you get your money back. If the seller passes away, life insurance returns any principal AND accrued interest still due to you.
In no circumstance is your principal at risk, and at no point is your yield – rate of return- going to change. Only the time frame or term of your investment may vary- it may not be the full length we anticipate at the outset, if the seller passes away. And for many people, the chance of early payoff is a GOOD thing, allowing them to re position their assets in the future.
Life Contingent Details
It’s important to note that as of 2016, we are able to offer a new, proprietary insurance product on life contingent payment streams that addresses all the prior complexities we had with the market, and finally delivers investors a safe, higher yield.
With a sophisticated institutional partner, we now have access to a proprietary insurance product tailor made for life contingent payment streams. The policy is backed by an AM Best A- global re-insurer, and payments wrapped with this insurance are only available through us and our partner.
What makes this uniquely valuable to investors is that the life insurance is tied directly to the value of the investment- the life insurance benefit rides up with deferred compounding, then declines with the payment stream, and perfectly matches the amortization schedule of the investment.
In addition, there are no issues of ownership, no collateral assignment, no issues of underwriting, and the policy is prepaid in full at the outset of the transaction. Best of all, the amortization schedule of your investment is an attachment to the insurance policy, and you take full and re-assignable ownership of the insurance. The seller is simply the measured life.
All the issues with the old way of transacting life contingent payments have been eliminated with this new system. We are excited to get have life contingent offerings knowing these transactions are properly structured and hedged.
A little more front end understanding is important for buyers to gain before reserving. But once you ‘get it’ it’s easy to see that Life Contingent cases are a great deal.
In recognition of the added costs and agreements, Life Contingent Secondary Market Annuities come with a MUCH higher yield.
Pros and Cons of Life Contingent Secondary Market Annuities
Because life contingent deals are not absolute payment streams, they’re not for everyone. Some investors do not want the uncertainty of receiving a lump sum in the future if a seller were to pass away. Others do not like the idea of third parties like mortality verification and payment servicing companies.
However the flip-side is also a possibility – receiving a lump sum might be an unexpected windfall. It might allow you to reinvest in a different rate environment, or it may be financial flexibility that is welcome. That depends on your situation.
As for qualified funds, there can be some complications purchasing life contingent deals with IRA money, so be sure to give us a call.
Life Contingent Secondary Market Annuities Summary
The important thing to look at is that life contingent deals have a higher rate of interest. This rate is reflective of the slightly more complex nature of the transaction and the possibility that the seller would pass away.
But it’s really important to note that the costs of additional agreements and services are borne by the sellers through the higher discount rate they accept when selling life contingent payments- you benefit with a higher rate, and your principal is at all times fully insured.
If you are seeking a higher yield, then a life contingent deal might be for you. We do not publish all the life contingent deals available to us, so be sure to give us a call. We can discuss your needs, and find the right deal for you.