Even though the word ?annuity? is not a foreign word to average investors who may be stock market driven, many may recognize the word yet have no idea how it functions. Of course, for any person who watches enough TV may remember that for several years there was a blitz on many channels featuring a ?pitchman? for annuities aka structured settlements that made this phrase famous: ?It?s your money. Use it when you need it? In other words telling the annuitant who may be getting annual payments for the next 20 years with the possibility of a lump sum when they reach 65 (if they live that long) to, in essence, take the quick money, buy a yacht, and sail around the world; you wish!
In many investments those two brothers ?good and a bad? always appear at the party. On occasion, an annuity investment has been touted by many as a rainbow showing the way to that ?pot-of-gold; offering a ?no risk? mantra, and returns that can range from 5 percent to 8 percent. High yield ? no risk. Sounds a bit familiar, doesn?t it? A structured settlement investment?becomes available when a plaintiff wins a large sum of money via a legal lawsuit. The payment compensation is then awarded in a series of annual payments over a certain time period. Some annuity payments have been known to drag out over long time periods until a lump sum balloon payment is made.However to avoid any financial risks, that scenario can change to where the plaintiff or lawsuit winner is no longer interested in waiting years or decades on a long term payout. So to eschew the awarded annual payments, the defendant or the liability company representing him or her, often will purchase the annuity from a quality insurance company to make the agreed upon payments to the plaintiff, which then allows the defendant to resolve the annual payment conundrum with one a single lump sum payment. The fact is that most investors or investment companies who purchase structured settlement annuities don?t keep them very long in their business portfolio. They re-sell the annuity payments to other investors, take a small piece of the pie, or markup as a ?commission,? then turn around, seekout other similar deals, and repeat the process.So how does the investment return work when payments are so irregular? If you look at it from an investor?s point-of-view, it?s kind of like buying an original issue discount bond maturing at par value. Many annuity investments will show a five percent internal rate of return over a five to ten year period, which is more than anything offered by any bank CD. Also annuity payments are usually backed by highly rated insurance companies that provide virtually no risk whatsoever of any outright annuity payment default. The end result being that the settlement recipient may have a desperate need for money; Ergo more willing to suffer a healthy discount to get the cash now, not later.tracy morgan Chase.com Talk Like a Pirate Day raiders Demi Lovato iOS 6 Features lindsay lohan
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.