Comparing a conventional annuity to a secondary market annuity is sort of like comparing apples and oranges. Secondary market annuities are often referred to as structured settlements or a structured settlement annuity. Unlike conventional annuities, secondary market annuities are not a contract between a policyholder and an insurance company. Secondary market annuities (structured settlements) are used to resolve personal injury claims. A specialized intermediary or broker will structure the transaction which is intended to provide a guaranteed stream of income over time (like an annuity) to the injured party. The secondary market annuity is funded and backed by an annuity. The recipients of the funds from a secondary market annuity buyer often agree to sell these future cash flows for a lump sum of cash. The lump sum often represents a discounted value of the actual present value of those future cash flows. The intermediary who purchases and then resells the discounted future cash flows may sell the cash flows at a value that reflects (somewhat) the discount. Similar to the challange of comparing different types of annuities (for example, comparing variable and fixed annuities), a secondary market annuity must be analyzed based on its own merits rather than to another financial product that may not be entirely relevant.
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