The definitional question
Is a secondary market annuity actually an annuity?
No. A secondary market annuity is not an annuity contract. It is the court-assigned right to receive structured settlement payments, bought at a discount. The name stuck because a large insurer usually funds the payments, but what you own is a payment right, not an insurance product. Here is why the distinction matters and what it changes for you as an investor.
Where the name came from
If you searched this question, you have probably noticed that companies in this market use the word annuity loosely. The underlying asset starts life as a structured settlement. Someone resolves a lawsuit and receives long-term periodic payments, which the defendant typically funds by purchasing an annuity from a large carrier. When that person later sells some or all of their payments for a lump sum, a court approves the transfer and an investor buys the right to receive them.
The investor now collects payments that an insurance company happens to write checks for. That proximity is where the industry term came from. What the investor actually owns is different in kind, and we think you should hear that from our team rather than discover it later.
"Secondary market annuities" is an industry term for factored structured settlement payment rights and similar assigned payment streams. It does not mean you are buying an insurance annuity contract.
Important distinction: Buying a secondary market annuity does not create a new annuity contract in your name. You step in as the new recipient of a stream of payments that already exists. No insurer issues you a policy, which is exactly why the protections below work differently for you than they would for the original owner.
What the regulators actually say
The short answer is that the people who regulate insurance have already ruled on this. The National Association of Insurance Commissioners took up acquired structured settlement income streams in Statutory Issue Paper No. 160, adopted in 2019, and treated them as investments rather than insurance. The investor is not a policyholder and holds no contract with the carrier.
That leads directly to the consequence that matters most. State guaranty associations, the safety net that can step in for policyholders when an insurer fails, protect contract owners. An investor holding assigned payment rights generally is not one. FINRA has made the same point in investor communications about factored settlement products. The backing you rely on is the financial strength of the carrier and the court order assigning the payments, not an insurance guarantee.
Federal tax law draws the same line from another direction. Internal Revenue Code § 5891 imposes a 40 percent excise tax on acquiring structured settlement payment rights unless a court approves the transfer in advance under a state structured settlement protection act. Every legitimate deal in this market runs through that court process. It is the reason the phrase court-approved appears on every listing we publish, and you can see how the process works step by step in our guide to how buying a payment stream works.
NAIC SIP No. 160
Acquired settlement income streams are investments, not insurance. The buyer is not a policyholder.
No guaranty coverage
State guaranty associations protect contract owners. Assigned payment rights generally fall outside that net.
IRC § 5891
A 40 percent excise tax applies unless a qualified court order approves the transfer. Court approval is structural.
What this means for investors:Your payments are only as dependable as the insurer standing behind them and the court order that assigns them to you. The state guaranty-association safety net that protects an ordinary policyholder generally does not reach you here, so the carrier's financial strength is the risk to weigh most carefully.
Why we insist on the distinction
We have been placing these streams with investors since 2011, and we see the same pattern in every cycle. Sellers who blur the line between payment rights and annuities attract buyers who think they bought an insurance product with an insurance safety net. When those buyers learn the truth later, the whole market wears the damage.
So we run the other way. Every listing on our live inventory states its category. Our structured settlement and lottery streams are labeled as payment rights. The one product line that genuinely is an annuity, our assigned annuities, is the only one we call by that name without qualification.
None of this makes the asset weaker. The payments are still funded by top-rated carriers and state lotteries, the assignments still carry a court order, and the discount still produces yields a new annuity cannot match. You can see exactly where those yields sit today on our current rates page. The asset earns its return honestly. It just is not an annuity, and you deserve a seller who says so.
Definitional questions, answered
Is a secondary market annuity an insurance product?
Are secondary market annuities covered by state guaranty associations?
What is IRC Section 5891?
Does PSA sell anything that is a real annuity?
Pacific Structured Assets, Inc. does not provide tax, legal, financial or accounting advice. The material on this website has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial or accounting advisors before engaging in any transaction, including the acquisition of factored structured settlement payments. Pacific Structured Assets is not registered with the Securities and Exchange Commission and is not licensed to sell insurance in any state.
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