Secondary market annuities, explained

Most of what the market calls “secondary market annuities” are not annuities at all. They are structured settlement payment rights: when someone who receives a structured settlement sells their future payments for a lump sum, a court approves the transfer, and an investor buys the right to receive those payments. You are buying a court-assigned right to a defined stream of payments, purchased at a discount to produce your yield.

Because the payments are typically funded by a large insurance carrier, the term “annuity” stuck. But regulators, including the National Association of Insurance Commissioners and FINRA, have been clear that factored payment rights are not annuities, insurance products, or securities. We use the popular term for clarity, and we always tell you exactly what you are buying.

You buy on the secondary market at a secondary-market price rather than the retail price and sales load an insurer builds into a newly issued contract. The original recipient already accepted a discount in exchange for immediate cash, and that discount becomes your effective yield. The carrier funding the payments is unchanged.

The trade-off is liquidity and time: these are long-term holdings with limited liquidity, intended to be held for the long term. There is no daily or public market, though resale or reassignment may be possible with our assistance at a price that is not guaranteed. That is the price of the higher estimated yield, and it is why they suit patient, income-focused investors.