What Are Structured Settlements?

Finding the cash you need, when you need it, can often be a struggle. For many who do not have liquid investments, such as stocks and bonds, other options may exist to get you the cash you need now.  One such option is to sell structured settlement annuity payments if you happen to be collecting such payments.  Those who are collecting such payments do not know that they have the right to sell their rights to those future structured settlement payments and receive a lump sum of cash now.  However, a few things should be considered in making a decision.

You may be asking, what is a structured settlement?  A structured settlement is an annuity contract that provides periodic payments to a personal injury victim as a result of a lawsuit.  Typically, a liability insurance company, on behalf of the defendant in the lawsuit, purchases an insurance annuity from a highly regarded and highly rated life insurance company to provide periodic structured settlement payments to the claimant or annuitant.

In 2002, U.S. Congress enacted IRC 5891, requiring that all structured settlement factoring transactions be approved by a state court. These transactions are governed by state statutes. Today all transfers are completed through a court order process. Most state statutes contain similar provisions including pre-contract provisions between the buyer and seller of the payment rights, notice to certain interested parties including the insurance company and lien holders, the recommendation to seek independent professional advice, and court approval that the transaction is in the best interest of the seller and dependents of the seller.

The process of cashing out a structured settlement is known as a structured settlement factoring transaction. Reasons for selling structured settlement payment rights vary but can include medical expenses for oneself or a loved one, the need for improved living conditions or transportation, college expenses, or the pay off high interest debt, such as credit cards.  The annuitant has a choice of whether they would like to sell all or part of their structured settlement payment stream; this includes splitting the number of payments being sold or the amount of each payment being sold.

Structured settlement factoring transactions are priced using a discount rate to calculate the present value of the payment stream. A discount rate is similar to an interest rate of a credit card but reversed in the sense that the time value of money is calculated into the transaction to acquire the present value. Discount rates can range from 8-18%+ depending upon many factors including the payment stream, funding company, and court costs.

It is important for annuitants to shop their structured settlement payments to multiple companies in order to receive the best price for their future payments. A common practice in the structured settlement factoring industry is for companies to initially low-ball an offer, and then adjust the quote higher if the annuitant has received a better offer from another company.  Other worse practices in the industry include “interest drag” which is the practice of prolonging the court process in order to increase profit through the per diem rate.  It is also a good idea to check the Better Business Bureau record of the company you are doing business with to check the company’s complaint history.  This will ensure that you are working with a reputable company.

Not every buyer of structured settlement payments is the same.  As in any business, you need to check the competition. Don’t be pressured to buy quick, from the biggest brokers of structured settlements.  The biggest companies do not always give the best quotes.  Don’t be fooled.  There are plenty of fine companies out there.  Find someone you can trust, someone you feel really cares.

The business of buying  structured settlement payments is a business just like anything else. However, it’s a business that can help you get a nice-size lump sum settlement for your structured settlement payments and annuities.  If you are compelled to sell your structured settlement and need to locate a buyer of structured settlement payments, do some research.

When you consider the biggest names and the number one or two buyer of structured settlement payments, consider that there is also a nice-size overhead for their business, and often huge advertising campaigns, using your money for those ads.  It’s fact, not fiction, that if you are choosing a finance company that can really help you, wouldn’t you want someone who is smart enough to keep ad campaigns low, high visiability, and smart accounting? Think of how sensible this really is.  If your buyer of structured settlement payments isn’t “accounting-minded” enough to keep low on the campaign funding then maybe he isn’t the best in the business.

But those ads make companies like this very visable and are very smart indeed, not for you, but for the company.

When you’re choosing a buyer of structured settlement payments company, choose by repuation, quote, and your “gut-feelings” when you converse with the company reps.  You’re smart.  Search the best companies, get a quote from each of them, and then contact each of them personally.  Sometimes we can use our own intuition, since we are smart enough to know if the rep is trying to sell, or help us.

You have already been unfortunate enough, and deserved your settlement.  Don’t settle for the least amount.   You may need money now for debt relief or a business investment and don’t have time to wait on lifetime terms of monthly payments you can barely afford to live on.

Structured settlement payments are not always the benefit they are made out to be. If you find yourself with a structured settlement but in need of a lump sum payment, you may be able to sell your structured settlement payments in exchange for the money you need now.

To sell your structured settlement payment, the first step is to find a buyer. There are many companies that specialize in purchasing structured settlements and annuities; you just have to decide which one to go with. You can begin your search on the internet but there may also be local companies you can utilize. Once you decide on a company, it is time to begin the paperwork for the transfer.

Most companies will want to see the contract and other paperwork setting up your structured settlement. These documents provide all the necessary information to evaluate the asset and to determine if it can be bought and transferred. There will also be other documents the company needs you to fill out in order to transfer the structured settlement to you in exchange for a lump sum of money. These documents will vary by company, but will usually not be too cumbersome. Most companies will at least have a basic contract for this purpose but others may very well have a mountain of paperwork to fill out and sign.

The final step in selling your structured settlement is receiving the lump sum payment. You may have the option between receiving a cashier’s check for this transaction or to have it directly deposited into your bank account. Direct deposit is a good option to alleviate unnecessary hassle. It can also be done considerably quicker than cutting and mailing a check. However, all companies may not have this option available.