The term secondary market annuity or SMA in short refers to an in force, period certain payment stream. The term secondary market is used to differentiate these existing payment streams from primary market period certain annuities.
While there are payments in the marketplace that originate in lottery prizes and individually owned annuities. It’s important to clarify that most secondary market annuity transactions stem from structured settlement compensation. In example legal claims for personal injury or medical malpractice. It’s also important to note that these transactions have nothing to do with life settlements. Life settlements make bets on actuarial tables, but the secondary market annuities discussed here are period certain guaranteed receivables.
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The majority of SMA’s in short are guaranteed payment streams backed by period certain annuities. These SMA’s are from major carriers that currently pay compensation for damages, injuries, or legal claims.
When an injured party elects to take their award as a structured settlement over time, U.S. tax code IRC 130 allows the plaintiff to receive their compensation free from income tax. By opting for a structured settlement over time rather than a lump sum, the plaintiff can receive both the award and the earnings of that award without tax liability.
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