Phase2 - Case Studies

CASE STUDY #1

 Ray, a construction worker, was seriously injured and recently received a 10 million dollar settlement. He is now forty three and has been declared disabled. He is married with two children ages 7 and 9. 

How would we invest Ray’s money today compared to five years ago?

Five Years Ago: The structure broker would provide a structured settlement lifetime quote with a 3% cola for Ray to cover his needs. The broker may also have added some lump sums to cover future anticipated needs and provided college funds for Ray’s children. The structure broker would have added a lengthy guarantee on the lifetime annuity to protect Ray’s wife. The structure broker would have most likely captured 4-4.5 million in premium to fund the structure and the rest would go cash, while earning a $160-180,000 of total commission.

Today: Lower interest rates, split commissions, and availability of lower cost term insurance change the landscape of what is a reasonable allocation for the client. Today, we  would still take care of the client’s basic needs using a structured settlement. In the case at hand, we would place 3 million dollars in a lifetime structured settlement paying $12,000 a month for life with a 30 year guarantee. We would then invest the rest of the funds in an index annuity. The index annuity pays a 5% bonus to the client on initial investment and the client can withdraw up to 10% a year without penalty if needed and all after 59 ½. The client will have to pay taxes on the amount withdrawn but his large medical costs would be a significant tax deduction. The entire amount placed into the index is not included in the FAFSA calculation for college financial aid.  The client will have principal protection plus a hedge to inflation.  The total commission paid on the six million premium invested would be $330,000.

CASE STUDY #2

Thomas, a 40 year old man, was hit by a car and received a 3 million dollar settlement. Thomas is married with two children. Thomas is now receiving social security disability. Thomas needs about $2,000 additional dollars per month for life to live comfortably.

How would we invest Thomas’s money today compared to five years ago?

Five Years Ago: We would have provided Thomas with a structured settlement that paid $2,000 per month for life with a 3% cola and a 30 year guarantee as well as college funds for his children. The premium for the structured settlement would be about 1 million dollars.

Today: We would provide the client with a 10-year certain Structured Settlement paying $2,000 per month with a 3% cola using $250,000, just a portion of the 1 million. We would place the remaining $750,000 plus all the cash out $1,000,000 into an index annuity providing the client with a hedge for inflation and access to additional monies if needed. We have provided the client with an appropriate vehicle to provide for future needs, while guarantying and protecting his principal. Further, the broker on this case increased their commission from $40,000 to $132,500.