Lately I’ve been hearing a lot of concerns and objections from a lot of otherwise financially unsophisticated and inexperienced plaintiffs about the IRR on structured settlement proposals. While they are correct that the rate of return is currently low by historical standards, they are missing the bigger picture.
To start with, it’s important to remember that structured settlements are tax advantaged, in the same way a 401(k) plan works, with undistributed returns compounding on a tax-free basis. So a structured settlement product with a stated return of 3% provides closer to a 4% or more return on a tax-adjusted basis. Also, the first question I ask people who tell me that the rate of return is low is, “Compared to what?”
But even after taking this into consideration, it’s not helpful to focus exclusively or even primarily on the rate of return when considering the use of a structured settlement product for one of your clients. Quite simply, there’s much more than rate that you need to think about. One of the major selling points is financial security since all the structured products we work with are provided by highly rated insurance companies. In addition to the security, it’s also very important to keep in mind the very high degree of financial flexibility offered by a structured product, so the timing of payouts can be precisely tailored to each client’s needs. Moreover, since insurance companies are able to incorporate actuarial assumptions into the design of structured settlement products, these products have the further unique advantage of providing beneficiaries with the security of a lifetime payout stream.
There’s one final point that should not be overlooked. One of the most significant advantages that a structured financial product offers a plaintiff is protection from financial imprudence. This is particularly important for clients facing long-term healthcare needs inasmuch as a structured settlement product functions like a sturdy piggy bank that can’t be easily smashed or broken. A client ends up with a secure lifetime payment stream that can’t be jeopardized by their own worst instincts or by opportunistic friends or family.
If you have any doubt about the benefits conferred by a structured settlement product consider this: when it comes to approving the settlement of a lawsuit that involves an award for a minor plaintiff, there are very few options that a Judge will consider. One option is a bank certificate of deposit. Another is a structured settlement product provided by a well-rated insurance company. As such, we think it’s pretty clear that a structured settlement product provides an excellent vehicle to safeguard the financial needs and interests of your law firm’s clients.