A structured settlement is a financial arrangement established after a legal case, typically involving personal injury, wrongful death, or workers’ compensation. It aims to provide the recipient with tax-free periodic payments over a set timeframe, ensuring financial security and stability. These payments are structured to meet the recipient’s long-term needs, taking into account factors like medical expenses, lost wages, and pain and suffering.
Why Consider Selling Structured Settlement Payments?
While structured settlements offer guaranteed income, there may be situations where accessing a lump sum becomes desirable. Some common reasons include:
- Immediate Needs: Urgent medical bills, unexpected expenses, or a pressing need for a down payment on a house might necessitate immediate cash.
- Debt Consolidation: Consolidating high-interest debts into a single, lower-interest payment can simplify finances and save money.
- Investment Opportunities: Investing a lump sum could potentially generate higher returns than the guaranteed payouts of a structured settlement.
It’s Important to Note:
Selling structured settlement payments is not a loan. You’re not borrowing money and repaying it with interest. Instead, you’re essentially exchanging future guaranteed income for a discounted lump sum of cash. The company purchasing your payments assumes the risk of receiving the remaining installments and deducts a fee (discount rate) to account for that risk. This means you’ll receive less than the total future value of your payments.
The Selling Process
Here’s a general overview of the process for selling structured settlement payments:
- Research and Compare Companies: Look for reputable companies specializing in structured settlement purchases. Get quotes from multiple companies to ensure you’re getting the best possible offer.
- Documentation and Evaluation: The company will request documentation related to your structured settlement, including the payment schedule and total value. They’ll assess your situation and provide a quote based on their discount rate.
- Negotiation and Approval: You can negotiate the offer to some extent. Once you reach an agreement, the company will initiate the approval process, which may involve court approval depending on your location and the size of the settlement.
- Receiving Your Lump Sum: Upon approval, you’ll receive the agreed-upon lump sum amount.
Crucial Considerations Before Selling
Selling structured settlement payments is a significant financial decision. Here are key factors to weigh carefully:
- Discount Rate: The discount rate significantly impacts the amount of cash you receive. A higher discount rate translates to a lower lump sum.
- Tax Implications: Consult a tax advisor to understand any potential tax consequences of selling your payments.
- Long-Term Security: Structured settlements provide guaranteed income for a set period. Selling them sacrifices that security in exchange for immediate cash.
Alternatives to Selling
If you’re considering selling your structured settlement payments, explore other options first:
- Negotiate with Creditors: Discuss repayment plans with creditors to potentially reduce monthly payments or interest rates.
- Government Assistance Programs: Depending on your situation, you might qualify for government assistance programs that could help alleviate financial hardship.
- Borrowing Against the Settlement (if allowed): Some structured settlements may allow limited borrowing against future payments. However, this option is not widely available.
Seek Professional Guidance
Selling structured settlement payments can be a complex process. It’s crucial to consult with a financial advisor and an attorney specializing in structured settlements. They can help you understand the pros and cons, navigate the legal aspects, and ensure you’re making an informed decision that aligns with your long-term financial goals.
