Below are a few words and definitions you may find useful in discussing and understanding the structured settlement process.
A person or measuring life entitled to receive benefits or a stream of payments pursuant to the terms of an annuity contract.
- Annuity Contract
Written agreement between an insurance company and an annuitant outlining the obligations of each party and the specific details of the annuity, including the future periodic payments the annuitant will receive as specified in the Settlement Agreement and Release.
A person or entity to whom an agreement, contract, title, claim, property, interest, or right is transferred. For the purpose of structured settlements, this is a third party who assumes the payment obligation of the structured settlement from the Annuity Issuer.
A transfer of some right, interest, or obligation from one person or entity (the assignor) to another (the assignee) and the corresponding assumption of that right, interest, or obligation by the assignee.
A person or entity to whom is passing on and transferring an agreement, title, claim, property, interest, or right. For the purpose of structured settlements, this is the defendant and/or the defendant’s liability carrier.
The person(s) designated to receive guaranteed benefits if the annuitant is not alive on or before the date the last guaranteed periodic payment is to be made pursuant to the annuity contract.
- Best’s Financial Strength Rating (FSR)
The rating that A.M. Best & Company assigns to insurance companies based on the company’s financial strength and ability to meet its ongoing obligations to its policyholders. A Best’s Financial Strength Rating is an independent opinion, based on a comprehensive quantitative and qualitative evaluation, of a company’s balance sheet strength, operating performance, and business profile. Best assigns letters to rate the financial strength and a roman numeral stands for the Financial Size Category (FSC) to indicate the size of a company in terms of its statutory surplus and related accounts. The highest rating category is A++, XV (Superior).
- Bond Simulation
In a structure context it refers to designing a cash flow to mimic a bond in which a series of payments are made followed by a deferred lump sum or balloon payment that is equal to the total cost of the structure.
Debt issued for a period of more than one year. Bonds may be sold by U.S. and local governments and agencies, or corporations. The issuer of a bond is actually lending money to the bond purchaser in exchange for repayment over time.
A lawsuit or action in a court.
- Certified Structured Settlement Consultant (CSSC)
A designation earned by a Structured Settlement Consultant after a battery of complex courses are offered and then by passing examinations by The University of Notre Dame and the NSSTA.
- Class Action
A lawsuit filed by one or more people on behalf of themselves and a larger group of people “who are similarly situated.”
The first document filed with the court (actually with the County Clerk or Clerk of the Court) by a person or entity claiming legal rights against another.
- Constructive Receipt
When income has been credited to the taxpayer’s account, set apart for the taxpayer, or otherwise made available so that the taxpayer may obtain it at any time. Not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions. The purpose of the constructive receipt doctrine is to prevent taxpayers from falsely influencing the timing of taxation by refusing to accept income that was actually available to them.
From the Latin word for “body.” Refers to the principal amount (usually money, securities, and other assets) of a trust or estate as distinguished from interest or profits.
Expenses associated with prosecuting or defending a case in court. Usually does not include attorney’s fees.
Date of birth.
The party from whom the plaintiff is seeking damages.
Electronic funds transfer. For the purpose of a structured settlement, the life company will transfer (wire or mail) the periodic payments directly to the annuitant’s bank account.
- Estate Tax
A tax imposed by the state or federal government on the transfer of property by inheritance before distribution to the heirs.
- Guaranteed Benefit
A benefit term that guarantees that the annuitant and/or beneficiary, as named in the contract, will receive payments. After the death of the annuitant, any remaining guaranteed benefits are then paid to the beneficiary until such time all scheduled payments are satisfied.
A person who has legal authority and duty to care for an individual and/or manage the rights and property of that individual because they are incapable of taking care of their own affairs.
- Guardian Ad Litem
An individual appointed by the court to represent the interests of a minor or incapacitated person only during the duration of the lawsuit.
- Internal Rate of Return (IRR)
An interest rate that is equivalent to the returns (on the amount of premium).
- Internal Revenue Code (IRC)
Federal law governing income taxation.
- Internal Revenue Service (IRS)
United States government agency that collects taxes and enforces the tax laws. It is a part of the Department of the Treasury.
- Life Care Plan *
A dynamic document based upon published standards of practice, comprehensive assessment, data analysis and research, which provides an organized, concise plan for current and future needs with associated costs, for individuals who have experienced catastrophic injury or have chronic health needs. The plan addresses medical, housing, transportation, and other expenses that will be incurred by the seriously injured individual throughout the course of his/her life.
- Lump Sum Annuity
An annuity designed to make a single payment on a specified future date or series of balloon payments on specified future dates
A program in the United States that pays for medical assistance for certain individuals and families with low incomes and resources. This program is jointly funded by the states and the federal government and designed to reimburse hospitals and physicians for providing care to eligible people who cannot finance their own medical expenses.
A program under the U.S. Social Security Administration that reimburses hospitals and physicians for medical care provided to eligible people over 65 years old, some people under 65 years old with disabilities, or people with end-stage renal disease.
Any person under the age of eighteen (18) years.
- National Structured Settlement Trade Association (NSSTA)
An organization based in Washington, D.C. of more than 600 members who provide structured settlements to resolve physical injury and workers compensation claims.
- Net Present Value
The present value of an investment future net cash flows minus the initial investment. NPV is one of the most robust financial evaluation tools to estimate the value of an investment or financial proposal.
- Normal Life Expectancy
The normal (or average) age to which a person is expected to live from his/her current age. Based on various statistical analyses and used by insurance companies to set prices and to make benefit projections.
- Period Certain
Also referred to as “guaranteed or term certain payments.” Payments that are not contingent upon the life expectancy of the annuitant. If the annuitant dies prior to the last guaranteed payment, then the remaining guaranteed payments will be distributed to the annuitant’s beneficiaries.
A person or entity that brings a legal action and seeks compensation for injuries suffered from another party.
- Qualified Assignment
A transfer of a future payment obligation by a defendant or insurer to an assignee pursuant to IRC Section 130.
- Rated Age
Certain medical conditions and injuries can result in a “rated age” or “impaired risk rating” or “substandard age rating.” An underwriter of a life company evaluates and estimates that, due to the substandard conditions and/or injuries, that the annuitant may not live a normal lifetime and it is therefore willing to accept the risk of providing lifetime payments at a lower annuity premium cost than would otherwise be required. The annuity premium and benefits are quoted at the rated age, as if the annuitant’s age is the rated age instead of the annuitant’s actual normal or standard age.
- Rating Agencies
Rating agencies provide formal opinions with regard to an insurance company that are of importance in measuring how effectively and profitably a particular company is likely to perform in the future and/or meet its obligations. The major rating agencies are A.M. Best & Co., Standard & Poors (S & P), Fitch, Moody’s, and Weiss Research. There may be a difference in approach between rating agencies but factors generally considered include company profitability, liquidity, investment strategy, surplus position, business practices, and capability of management. Companies pay to get rated by all agencies with the exception of Weiss Research.
- Settlement Agreement
A legal instrument executed by parties to a lawsuit or claim which states the case facts and the terms by which the plaintiff//claimant is releasing the defendant and the defendant’s Insurer. The payments to be made by the defense, the purchase of the annuity, and consent language for the assignment may appear within the document as well.
- Social Security Disability Insurance (SSDI)
Program financed with Social Security taxes paid by workers, employers, and self-employed persons. To be eligible, the worker must earn sufficient credits based on taxable work to be “insured” for Social Security purposes. Disability benefits are payable to blind or disabled workers, widow(er)s, or adults disabled since childhood, who are otherwise eligible. The amount of the monthly disability benefit is based on the Social Security earnings record of the insured worker.
- Special Needs Trust
A trust created for an injured party’s supplemental needs to preserve the party’s eligibility for SSI and Medicaid.
- Supplemental Security Income (SSI)
The SSI program provides monthly income to people who are age 65 or older, or are blind or disabled, and have limited income and financial resources. Effective January 2006, the SSI payment for an eligible individual is $603 per month and $904 per month for an eligible couple. If you are married, and only one person is eligible, a portion of your spouse’s income may be counted. In addition, your financial resources (savings and assets you own) cannot exceed $2,000 ($3,000 if married). You can be eligible for SSI even if you have never worked in employment covered under Social Security.
A fiduciary relationship which calls for the trustee to hold title to an asset for the benefit of the trust beneficiary. The grantor is the person who creates the trust and may or may not be the beneficiary.
Internal Revenue Service Form W-9 Request for Taxpayer Identification Number and Certifications used to certify under penalties of perjury that your social security number is correct and that you are not subject to backup withholding. If you fail to make this certification on a Form W-9, or similar statement, backup withholding may begin immediately on your new account. The backup withholding tax rate is 28%.