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What’s An ‘Advance’?

In the world of secondary insurance markets, an “advance” is a payment to a customer or potential customer of a secondary market transaction.  There are other names for the term, but advances are usually made by a company in order to induce the customer to proceed with a transaction with that company.

There can be many ways an “advance” can be made, and some companies advertise the fact that they offer advances – although the fine print is somehow not given as much attention as the offer of putting $500 or $2500 into the pocket of a potential customer within a day, or even hours, of the initial contact between the customer and the company.

What fine print?  Well, the company may say that the advance will have to be repaid once the transaction is complete – or even if the transaction does not become complete.  In other words, the advance might be used as a way to lock the customer into doing business with the company.

There have been times when advances have run afoul of the law.  Some structured settlement factoring companies, for instance, in the past have attempted to force payees to re-pay advances when courts have denied petitions for approval of transfers of structured settlement payment rights – and the attempts at forcing repayment sometimes have violated structured settlement protection acts (SSPAs).  In fact, under one view of the terms of SSPAs, an advance has the legal effect of a gift – but few payees are aware of that.  A few courts that have ruled on  related issues – like the invalidity of transfer agreements when courts have rejected transfers – have sometimes touched on issues relating to advances, and offered protections to payees as provided by SSPAs.  But the issue is rarely dealt with head on in contested judicial settings.

The bottom line, then, can be another reminder to be fully apprised of one’s rights and obligations when entering into an important transaction, like many of those in the secondary insurance markets.  Caveat emptor!

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