What is the servicing of structured settlement payments?

The servicing of structured settlement payments occurs when an annuitant enters into a structured settlement factoring agreement in which the annuitant chooses to split one or more payments and the factoring company becomes the payee of the entire payment. Once the factoring company receives the entire payment from the insurance company, they keep their agreed upon amount and pay the annuitant their portion.

How does this relate to structured settlement factoring?

The process of servicing payments for structured settlement recipients after completing a structured settlement factoring transaction is not a new practice and is a common occurrence in the industry. To this author's knowledge there are a total of three life insurance companies who will "split payments but won't dice payments." For example, if an annuitant decides to sell a certain number of their monthly payments, all insurance companies will cut the check to the appropriate party, whether it may be the tort victim, or the investor who has purchased the rights to the payments.

The issue is caused when an annuitant decides to sell a portion of their payment, but rather than selling an entire payment, they decide to keep a portion of that payment and dice the payment in half or as they see fit. Most insurance companies will accommodate this process and send the appropriate portions to both parties, the tort victim and the investor. The problem arises when a structured settlement factoring company does a transaction with an annuitant who decides that they want to dice payments and the issuer is 1 of the 3 companies who will not dice the payments. To solve this problem the factoring companies would purchase the rights to the entire payment and pay the agreed upon amount to the annuitant.

There are a few issues with this scenario:

1. Certain structured settlement factoring companies were using this scenario as an excuse to service annuities that did not need to be serviced. In other words, an annuitant would decide to sell their payments, the insurance company would agree to this, but the factoring company would still service the payments. The reason for this is because the factoring company is securing future deals by owning the rights to all of the future payments. Many annuitants would not understand this process and would think this is the norm for this type of transaction. That is false and has many implications.
2. The annuitant no longer owns the rights to their future payments. If they need help with anything regarding their annuity, they can no longer simply call the insurance company and speak to a licensed representative, instead they have to call the structured settlement factoring company to ask their question.
3. If the annuitant was ever in a situation where they needed to sell more payments, the structured settlement factoring company who completed their last transaction is the only company that is able to complete any  future transactions for that individual. Since the Chapter 11 Bankruptcy filing by JG Wentworth, investors are not interested in purchasing the rights to structured settlement payments serviced by other factoring companies. This means that any annuitant who has their payments serviced by a structured settlement factoring company will most likely be price gouged if they decide to sell more payments.
4. Structured Settlements 4 Real reported a story where Structured Asset Funding serviced a tort victim's payments, but failed to mail the check on time. This should not happen, but can happen because these types of companies are not geared to service annuity payments.

There are a couple ways to eliminate this problem:

1. The first solution would be to have the insurance companies who currently won't dice payments, start dicing payments. This would eliminate any and all need for any structured settlement factoring company to service payments.
2. In the meantime, companies who may need to service payments should use a third party bonded, insured, and licensed company to handle their servicing.

Over a year ago Settlement Quotes, LLC alerted others to this issue. From that date forward many companies have stopped the practice of servicing payments unnecessarily.

If you have any questions on this matter, please feel free to contact us. I will answer any and all of your questions as soon as possible.