In general, there are two (2) types of annuities used in structured settlements: (a) payments that are guaranteed to be made over a certain period of time; and (b) life-‐contingent annuities in which payments are made only until a claimant dies. These annuities are also referred to as non-‐guaranteed annuities. The purpose of these annuities is to provide a claimant with an income for a set number of years, sometimes as many ae 30 years into the future. A disadvantage of a life-‐contingent annuity is that a claimant receives the payments for only so long as a he or she is alive. For example, a claimant currently receiving structured settlement payments that are life-‐contingent will receive the payments when they are due but if they were to pass away, their heirs/family members will not be entitled to any payments that may be due on the annuity and, for purposes of this discussion, neither will a factoring company that purchases those payments. The receipt of guaranteed payments, life-‐contingent payments or a combination of both is determined at the timethe structured settlement is put into place. At this time, an analysis of a claimant’s current need of payments, his or her ageand other relevant factors is made to determine the nature and length of these payments. More times than not, if life-‐contingent payments are part of a settlement, those payments are typically scheduled to be paid relatively far into the future.
Most factoring companies purchase from claimants both guaranteed and life-‐contingent payments and the purchase of the latter has increased over the last couple of years. This article will focus on aspects of life-‐contingent structured settlement annuities because they are more difficult than guaranteed payments to underwrite given mortality and other factors.
