Interest Linked Structured Settlements evolved as a Pandemic era response to Consumer Fear of Missing Out on potentially higher future rates, by two related life insurers then under what was known as the AIG LIfe & Retirement Division. Deferred lump sums a common component of structured settlement architecture. However these lump sums have the ability to get triggered. Conceptually, the structured settlement payee will get the lump sum at the end of the benefit stream if interest rates go down,
OR trigger a potential extended tax-free benefit with a period certain if rates rise. Interest Rate Linked Structured Settlements offered an excellent opportunity for a payee to diversify their benefits
with unlimited upside (there is no cap on how high one company will credit interest rates if they rise) and a known, limited downside.
Bond simulations are a popular structured settlement cash flow strategy that combines a period certain annuity with a deferred lump sum to mimic the cash flow of a bond held to maturity. The strategy can be implemented with a single life insurer writing the period certain and deferred lump sums, or separate insurers each writing one of the two cash flows. Structured settlement brokers and settlement planners have used this as a strategy for years.
A structured settlement bond simulation ladder is
where you combine two or more bond simulations of different durations.
For example:
$2,500/month for 10 years followed by a lump sum equal to the cost of the income and lump sum in 10 years;
$3,000/month for 15 years followed by a lump sum equal to the cost of the income and lump sum in 15 years;
$4,000/month for 20 years followed by a lump sum equal to the cost of the income and lump sum in 20 years; and so on
Note: Your settlement agreement would need to be more specific, but this is just to give you an idea of the concept.
Deferral Options
You pick the deferral period for the lump sum from a choice of 5, 10, 15, 20 years
Income Options
You pick the income certain period 10, 15, 20, 25 or 30 years, to go into effect if the Reference Rate at the end of the deferral period is greater than when the annuity was established.
"For purposes of this section, the term “qualified funding asset” means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States, if
Last updated March 16, 2024
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