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Purchasing Structured Settlement

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Purchasing Structured Settlement
Know fundamentals of structured settlement. Find how to purchase or sell structured insurance settlement, the advantages and disadvantages it poses as also settling for structured lump sum settlement.

The term, structured settlement is becoming increasingly popular. Both investment businesses and individuals evince keen interest in purchasing or selling structured settlements. Insurance companies and law firms compete with each other and spend millions of dollars advertising in TV, magazines and newspapers. What makes structured settlement so very popular?

Look at the advantages structured settlement offers. One, structured settlements provide cash at regular intervals. In fact, structured settlements can be a source of income for life. Secondly, payments in the form of settlements are normally tax-free and thirdly, the state as well as federal laws protects the payment. Like two sides of a coin, structured settlement has disadvantages too.

Read further to gain comprehensive information about structured settlements. Find out if structured settlement is what you want. Understand the nitty-gritty before deciding to purchase or sell structured settlement.

Structured settlement

An explanation of structured settlement in financial terms would mean - a financial obligation of the offender to the victim or to the surviving relations. The offender could have caused physical injury to the victim or committed an act that has resulted in heavy damages to the victim. The offender and the victim will meet to discuss what it entails to meet financial obligations of the victim including providing for medical expenses.

A structured settlement by annuity may be suggested, the other choice being receiving a lump sum payout. The duration or how long the assistance will be required, the severity of the problem and the forecasted rate of inflation may be discussed. The lawyers of both parties will be participants and deal on behalf of the party they are representing. Their intentions would be to settle for the best possible deal in favor of their respective client.

A structured settlement agent specialist in annuities will calculate the long term value of the settlement. The calculations are arrived at based on present-day value. The party or the offender will then acquire an annuity to fund the settlement. And, the victim will receive a steady stream of payments over time. The sum of all payments will be greater than if the amount had been paid as a lump sum. The paying party benefits too. As the payments are purchased as an annuity, the offender pays less than the sum of all payments.

Structured settlements provide financial protection during incomprehensible situations of life. There are instances in life that are far beyond comprehension. A sudden event or happening that completely throws life out of gear challenging one's grit and determination. A bitter truth that is hard to accept is that a crisis can befall anyone anytime. Yes, life is indeed full of uncertainties.

For instance, imagine the hardships family members would face following an untimely death or serious injury of an individual or spouse, especially if the person's earnings were pertinent. Besides the emotional trauma, the family needs to face financial challenges of coping with lost income. Besides, if seriously injured or incapacitated there would be a substantial increase in expenses related to caring for the injured. It is here that structured settlement is likely to command serious attention and consideration.

An individual who decides to own a structured settlement annuity is bound by an agreement wherein the insurance company agrees to pay a predetermined amount of cash for a fixed time in case the individual meets an accident. Circumstances when structured settlement holds good include the following.

  • Unforeseen circumstances which results in temporary or permanent disability.

  • A severe injury that is likely to shorten the victim's life or impair mental competency.

  • Situations that may compel ongoing medical treatment.

  • Rehabilitation or permanent care facilities need to be provided for.

Uses, benefits of structured settlement

  • Dependents of the victim are protected financially long term by the structured settlement payments.

  • For the offenders it is beneficial to pay in installments rather making a lump sum payment.

  • Structured settlement benefits offenders to cut down on administration and legal expenses.

  • Payments and interest earned from structured settlement are not taxable so full amount of the settlement will be received.

  • Selling option - structured settlement payment can be sold in case of emergency or for better alternate investments.

  • US federal law HR 2884 makes possible sale of payments without paying taxes.

  • Lump sum settlements attract unwanted attention from known and unknown sources. Fixed income through structured annuity settlement is devoid of such danger.

  • A structured settlement is favorable to surviving family members. Food, housing and education are provided for a long period of time.

Disadvantages of structured settlement

  • Periodic payment may not be sufficient taking into account the high volatile market condition/ever increasing cost of living, medical expenses etc.

  • The process is elaborate and can prolong from 3-6 months and an extra 1-2 months may be completed before receipt of first payment.

  • The settlement agreement is rigid and cannot be amended. For instance, changing periodic settlement to lump sum one-time payout will not be accommodated.

Structured lump sum settlement

Structured settlement and lump sum payment, both terms are widely used in context with legal suit awards. Post lawsuit, if a person wins a small award the compensation is usually made as a one-time lump sum payment. On the other hand, if the award is large specifically for an injured person, there is an option of receiving one lump sum payment or receiving payment in smaller amounts spread over a period of time.

With huge amount of cash-in-hand, lump sum payment has advantages and disadvantages.

  • Easier to settle outstanding medical bills accumulated till the time of judgment.

  • More money in hand means paying more taxes now.

  • Lump-sum settlements are usually spent within five years.

  • Wise investments required so that money grows.

  • Makes possible purchase in cash otherwise difficult, such as new home

  • Money depletes faster thus making ends meet challenging.

Purchasing structured settlement

Over a period of time, individuals who had opted for structured settlement may desire to sell part or all of their future payments for a lump sum of money. There are various reasons why such a decision is arrived at.

  • In order to raise quick cash.

  • To cover a sudden financial obligation, to manage financial crisis.

  • To meet financial emergencies resulting from divorce, to meet mortgage needs, medical emergencies or for debt repayment.

  • To start a business.

  • To enable children pursue higher education.

Then, the annuitant may decide to sell full or part of future payments for a lump sum of money. The structured settlement is available for sale at a discounted price. When purchasing structured settlement there are various points for consideration. Certain legal requirements and restrictions can affect the buyer. For a safe deal, here are critical points to ponder.

  • Check if structured settlements are awarded in US dollars.

  • Review structured settlement payment rights.

  • Financial brokers facilitate transactions. Select and work only with an established/reputed broker.

  • Check if the structured settlement financing company is a member of the National structured settlements trade association.

  • Get multiple quotes, compare for best deal.

  • Discuss all issues at length. Arrive at an amicable agreement. Document the same.

  • Ensure purchase application is duly filled and sent to court for approval.

  • An attorney reviews agreement to ensure interests of both parties are protected in all ways.

  • Check if all tax considerations are duly complied with.

The purchaser could be an individual, corporate entity, foundations or trusts that get to enjoy benefits such as:

  • Receives higher yields than from fixed rate investments.

  • Receives a fixed income over defined period of time.

  • Valuable financial proposition to increase yields and maximize income at retirement.

  • The process needs to comply with state regulations and hence is safe for purchaser as much for the seller.

  • Broker's participation is minimal and the purchaser has full control during the entire investment process.

  • All future cash flows are received from the rated insurance company committed to making such payments.

  • The right for structured settlement is authorized/subject to court approval.

Sell structured insurance settlement

In the best interests of annuitant, selling structured settlement should be avoided. In nine out of ten cases, it has proved to be detrimental especially to disabled individuals, minors, workers compensated for loss. Reason being, the annuitant is likely to lose up to half of the long-term value of the structured settlement. The entire process can take a minimum of three months.

Under dire circumstances, if compelled to sell, make use of structured settlement selling guideline.

  • Sale of structured payments is restricted in some US states. Check status as applicable to residing state.

  • Consult a financial advisor.

  • Re-think and analyze from various angles the pros and cons, methods of managing future expenses minus a structured income.

  • Contact a qualified broker to help with deal.

  • Check about companies that can buy structured settlements.

  • Shop around to get the best deal.

  • Work out amount being offered and compare with intended future amount.

  • Know fees and regulations involved in the deal.

  • Differentiate between reasonable and unreasonable deal.

  • Accept a reasonable deal.

  • Ensure preferred method of payment is accepted.

  • Consider selling only part and invest amount in real estate.

  • Exchanging for another investment plan may be a viable proposition.

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