FUNDING AGREEMENTS

Structured Settlement Funding Agreements and B2B Funding Agreements

Funding Agreements

What is a Funding Agreement?

A funding agreement is a legally enforceable contract, backed by the general account contract of a large insurance company. A Funding Agreement is similar to a Period Certain annuity in that it provides a predictable stream of fixed periodic payments in exchange for a lump sum today. It gives buyers the ability to match to specific liabilities. A funding agreement can be fully customized at the outset, and payments can be paid at different amounts and times in lump sums or installment payments. Maturities can be laddered. Typically used for settlements between corporations, B2B disputes and institutional investors.

Funding agreements support guaranteed periodic payments and lump sums, but do not allow for mortality or morbidity contingencies.

Competitive pricing and the ability to adjust future payments upon the occurrence of anticipated events are two compelling reasons to consider the use of our funding agreement product to help resolve these often large and complex dispute settlements.

Where to Use a Funding Agreement

Settlement of wrongful termination lawsuits
Settlement of employment discrimination lawsuit

Settlements of any type of claim or lawsuit involving taxable damages (e.g. breach of contract) with Deferred Fixed Periodic Payments

Future bonuses and/or benefit plans for employees
Government contracts
Building contracts
Breach of contract
Securities Lending Programs
Short Term Investment Funds
Construction Financing Loans
501(c)(3) Charity Contracts, foundations and endowments
Funding of environmental clean-up site schedules for remediation and stewardship, and other scenarios where a corporation or other entity (i.e. that is “other than a natural person”) needs a contract providing for a fixed payout and cannot use an annuity.
An ERISA employee benefit plan or any similar plan in a foreign country (will require the tax status of plan in that case)
As an agreement to make periodic payments to satisfy a claim (e.g. like a structured settlement where payee is a business entity)
Any program of the United States, any state or other political subdivision, or of any foreign government (including its political subdivisions). Special requirements for foreign governments include indicating the political subdivision, agency, or program of that foreign country and the funding agreement issuer must be provided with a description of the nature, purpose, and tax status of the program);

The differences between a funding agreement and a regular annuity are

There is no Measuring Life or annuitant

There is no premium tax
The owner (assuming it’s a taxable entity) is taxed on the inside build-up
Because the funding agreement is not an annuity, IRC Section 72 restrictions do not apply

Benefits of a Funding Agreement

Stable Value. More effective future planning due to certainty of recovery

Diversification through use of insurance company credit as an alternative to other vehicles.
Flexible design can be tailored to meet the needs of clients.
Tax-efficiency through timing of payments
Provide financial assurance to the Payee
Potentially significant expense reduction
Insured’s ability to meet SEC requirements may be enhanced

Last updated April 5, 2025