What is exactly is a cash structured settlement? Basically a cash structured settlement occurs when there is an insurance company that provides scheduled payments to a person as a result of a claim settlement. In other words, a structured settlement is a monetary package that allows for payment of a settlement to occur through scheduled installment payments for a period of time.
Structured settlements were first introduced in early in the seventies in Canada, then spreading rapidly into the United States. Several years later, this method found its way to Australia as well as Europe.
One benefit of structured settlements is that provides a tax free recurring payment over a period of time. These payments can very well be spread out through the live of the recipient. If death happens to occur to the recipient, a guaranteed portion of the settlement can be paid to a beneficiary.
An alternative to structured settlements is a lump sum payment. This basically means that a one time amount will be paid to the recipient instead of breaking the amount down into multiple payments over a designated period of time. This often occurs when a person wins the lottery. Some reasons that lump sum payments are of interest to individuals is that they may have a large expense they wish to pay off. For example, a home loan or mortgage, medical expenses, credit card debt, etc. With a lump sum payment, many debt issues can be resolved as a result of the large payment.
Although lump sum payments may seem appealing to some, structured settlements provide a continuous recurring income over a designated period of time.
Just because you received a structured settlement for your lawsuit, it doesn’t mean you have to wait for years to get the money. There are many settlement purchasing companies that will give you instant cash for your structured settlement. These companies can pay cash for the entire structured settlement or purchase your remaining periodic settlement payments. You can spend this lump-sum payment on anything-a house, college tuition, business investments or debts.
What Is a Structured Settlement?
A structured settlement, which typically results from a personal injury lawsuit, is an agreement where you consent to accept payments over time in exchange for the release of liability for your claim. A structured settlement can provide payments in almost any manner you choose. For example, the settlement may be paid in annual installments over a number of years or in periodic payouts every few years.
These payments are generally awarded through the purchase of one or more annuities from a life insurance company. Structured settlements can also be used with lottery winnings, contest prize money and other situations with substantial cash awards.
Structured Settlements Not Always the Best Fit
In theory, structured settlements are designed to provide long-term financial security to injury victims through tax-free payments. And for most people, the agreed-upon structured payment plan initially makes sense. However, a financial emergency, a business opportunity, an unforeseen medical expense, or a house purchase can put a strain on the injured party’s finances.
And the structured nature of the settlement may become too restrictive to cover major financial purchases. Also, a structured settlement may not be the best option for investing. There are many other investment vehicles that can generate greater long-term return than the annuities used in structured settlements. Therefore, some people may be better off getting cash for their structured settlement and then building their own investment portfolio.
How Getting Cash for a Structured Settlement Works
If you receive an award from your injury case, an attorney or financial advisor will likely recommend setting up periodic installment payments instead of giving you a lump sum of cash up front for your structured settlement. Then, an independent third party will purchase an annuity that will provide you with tax-free periodic payments.
Companies that offer cash for structured settlements have a variety of programs that can allow you to access any portion of your annuity. For example, you may want to sell as little as four year’s worth of payments or receive a lump-sum payment while still enjoying some portion of your monthly payment. Or you can sell your settlement for a large payment that is five or six years in the future. You can also customize an arrangement to get cash for a structured settlement based on your unique needs.
Here’s an example of how obtaining cash for a structured settlement works: Let’s say you were in an accident five years ago. The accident caused you to be hospitalized for several months and undergo nearly a year’s worth of physical therapy. So you hired an attorney and sued the responsible individual-or, rather, the person’s insurance company. Ultimately, your attorney advises you that you’ll be awarded a substantial sum of money.
After several months or years of negotiation, you receive a sizable settlement. However, the cash you get upfront is only enough to cover the medical expenses. The rest of your compensation is scheduled to be paid out in regular installments through an annuity over the next 15 to 30 years. Rather than being restricted to monthly or annual payments, you contact a settlement purchaser to secure immediate cash for your structured settlement. You’re then able to use the cash to enhance your current cash flow-rather than waiting on periodic future payments.
Legal Issues of Receiving Cash for a Structured Settlement
If you’re contemplating getting cash for your structured settlement, it’s important to contact a financial advisor. Most states have regulations that limit the sale of structured settlements, so you’ll need court approval to receive cash for your structured settlement. Federal restrictions also may affect the sale of structured settlements to a third-party individual. And some insurance companies won’t transfer annuities to third parties.
Also, before you attempt to obtain cash for a structured settlement, be sure to do your homework. Check out multiple companies to see which one can offer you the most cash for your structured settlement. You also want to examine their integrity, reputation and track record. This will help ensure you have the most positive experience obtaining cash for your structured settlement.
Receiving cash for a structured settlement is an ideal option if you need a lump sum of money to meet your immediate needs.
If youve agreed to accept a structured settlement, its likely that you felt a sense of relief that your financial uncertainties were being resolved, and that youd have the funds necessary to pay your bills, support your family and go on with your life. When you agreed to the terms of the settlement, hopefully with the help of a financial advisor, you accepted a series of financial payments that made sense for you at that time.
Perhaps youd suffered personal injury in an auto or other accident, you were awarded damages in a product liability case, or you were the victim of medical malpractice or were even the plaintiff in a wrongful death suit. You agreed to a periodic (usually monthly) payment, maybe in the form of a lifetime income stream, that seemed to be the answer to paying your ongoing living expenses and perhaps your medical costs. You made the best decisions you could at the time, with the information you had based upon how life was then, and what you expected for the future.
But life seldom works out as we expect. Maybe youre on the road to recovery from the accident or other event for which you received the settlement, and want to move and buy a house, get married, go to school, or buy a business. Maybe medical bills or high interest debt is an undue burden on you that you need to resolve now. Or, if your family has grown, and your children no longer need for you to provide for their education or other expenses, you may want to spend more of the money you have coming to you now, instead of later.
What can you do to match your finances specifically your structured settlement with the life you now have or want to have? You should always consult an attorney or a financial advisor, but heres a basic overview of your rights and options in assigning your structured settlement:
Settlements are funded by single premium annuities, issued by insurance companies. Instead of paying you a lump sum amount, the party found responsible for injury or damages to you has paid a one-time lump sum to an insurance company, which has, in turn, invested it. The insurance company has projected the interest rate or securities dividends they will receive on the lump sum, and based upon the length of time and number of payments you chose or were offered for the structured settlement, they calculated the periodic payment amount youre now receiving.
So who owns what? The insurance company owns the annuity, and you, as the beneficiary, are entitled to an income stream, or the series of periodic payments. Because you dont own the underlying asset, the annuity, you therefore cant sell the annuity contract to another party to receive your money. However, under federal and state law you can, with court approval, sell all or a portion of the payments you are entitled to receive in the future. In doing so, you can receive a lump sum cash payout now.
What are your options? As an annuitant, or the beneficiary of the structured settlement annuity, you are, in most instances, able to assign to a third party the payments you are entitled to receive in the future. Some Structured Settlement Agreements state that payments cannot be assigned, and your legal counsel will advise you of options and alternatives if yours is written with such a clause. Fortunately, state laws and recent case law have rendered contracts written with such provisions unenforceable, although other regulations may apply.
How can you determine todays lump sum value of your structured settlement payments? This depends, in part, upon the amount of each payment and when it is due. The payment amount and schedule will be outlined in your Structured Settlement Agreement. It is also affected by the financial strength of the issuer of your annuity, because the better the financial position of the issuer, the more likely it is that the purchaser of your cash stream will be paid. The current financial climate, as well as interest rates will also affect your cash-out amount. Your financing company will explain these calculations and assumptions to you.
What steps do you need to take?
- First, you really need to take a hard look at whether receiving your funds now will truly be best for you and your family. This is a big financial step, not to be taken lightly. That said, your circumstances may have changed sufficiently so that a lump sum or partial payment in the form of a lump sum makes sense, and is better for your familys current and future lifestyle and financial stability.
- Next, contact a reliable financing company that purchases structured settlement income streams. They can guide you through the process and help you consider alternatives, such as the sale of a portion of your structured settlement income stream, if this best meets your needs.
- The financing company will assist you by hiring an attorney experienced in structured settlement assignments. The attorney will explain to the court your desire to change your settlement, and any changes in your life that have caused you to make this decision. Because the attorney will be petitioning for judicial approval, he will need to understand your current finances, obligations and desires.
- Having all your documentation and agreements, and furnishing them promptly to your advisors and potential funding sources is key to receiving a cash payout in the shortest possible time. Because court approval is required, the time from the initiation of the request to the final approval is typically 45-90 days. So, just as with other large financial decisions, such as obtaining a mortgage or refinancing, its in your best interest to begin the process with a little time to spare, before you feel a time crunch. You deserve an equitable deal, as quickly as is possible, not just the deal you can make in the very least amount of time.
- What can you expect now? Once you have chosen a finance company and attorney, the courts will put you on the docket and hear your petition for receiving your funds in a lump sum. Theyll want details of the future payments due you, the proposed amount of the lump sum distribution, and any costs you will incur as a result of restructuring your settlement. Their basis for granting you an approval is satisfying themselves that the assignment of your payments to another party and receipt of current cash will be in your best interest and in the best interests of any dependents you may have.
- Once youve agreed upon a lump sum amount with your finance company, and obtained court approval, youll receive a wire transfer or a cashiers check for your lump sum amount. Youll now have the cash you need right when you need it most.
There are various companies that offer a lump sum payment in exchange for cash flow streams generated by structured settlements. Beneficiaries of structured settlements often have to sell settlements when faced with an urgent or near-term liquidity need.
The process of selling structured settlements begins with understanding ones requirements and the immediacy of the need. This can be done with the help of a financial advisor. In fact, in several states in the U.S, it is mandatory to take legal advice before selling a structured settlement. Brokers who are knowledgeable about the court procedures involved in the sale of a structured settlement can be of great help. Brokers are in contact with numerous settlement companies and upon understanding a sellers unique requirements they can guide the seller to the most appropriate settlement company. Either with the help of brokers or by searching online, one can select a financial institution that appears to offer the best price for the structured settlement at minimum cost and in as less time as possible. Sellers should also check the prospective buyers credentials, the rate of interest they offer, and their record for prompt payments.
Sellers are usually required to fill an application form that provides the buyer with necessary information such as amount required, nature of the structured settlement, and the insurance company. Upon approval of the application, the buyer forwards closing documents to the seller. These should be studied and understood by the seller with support from his financial advisor. Once the provisions mentioned in the closing documents are met, the funds are released to the seller. The insurance company is made aware of changes in ownership of the structured settlement. The receipt of cash flow by the seller is subject to court approval. The court assesses the sellers circumstances and then decides whether the sale is in the best interests of the seller and his dependents. A court approved sale of structured settlements is tax-free for the buyer and seller.
The cash flow received in exchange for the structured settlement is minus the buyers fees and other expenses such as broker commissions, application fees, and legal expenses. These costs are not out-of-pocket expenses for the seller nevertheless they should be carefully considered with respect to different buyers and the maximum amount that can be obtained by the sale of a minimum number of structured settlements.
For most people when they buy a house it is considered their lifes largest deal. In some cases of structured settlements the compensation and financial considerations for a persons life duration and the total present value of the settlement can reach few millions of pounds. Therefore it is strongly advised to use professional services like annuity consultant and a lawyer specialized in this field in order for you to avoid painful costly mistakes. Here are some tips:
- Think twice before you make a decision. Do you really need that money or you want to feel rich, secure, powerful etc
- Take only part of the money not all of it, in case of an injury claim the Court needs to approve your request, the judge will want to know what do you need the money for.
- Some Funds will try to convince you that due to Inflation and rising cost of living your annuity payments have less and less buying power over time. Remember that if the Structured settlement was done properly it has a cost-of-living adjustment (COLA) feature build into it in order to offset the effects of inflation over time. So the funds claim on this issue is only partially true as the cost of living index is an artificial and biased measure of the actual inflation over time. Still even 70% protection is reasonable.
- When you get a large sum of money take into account that each bank is F.D.I.C. insured for up to 100,000 only! That means that if your sum of money is bigger than that you will need to open additional Accounts in a different banks in order to be covered.
In addition take into account that as long as you deposit your money in C.Ds (e.g. Certificate of Deposit) you are covered, but if you invest your money In fixed income, stocks, bonds, and mutual funds. These securities are NOT F.D.I.C. insured!
- In case you transform Lottery winnings payments or a large sum of money from structured settlement, keep it as discrete as you can, It is not recommended to go and buy a Rolls-Roys or any other flashy car, that will bring the criminals and the charity people to chase you. That might even cause your children start to ask for money. Try to keep it a secret.
- It is a good Idea to get more than one or two offers from various private funds before making a decision, remember you are a very lucrative customer, the funds should fight over you! Dont be timid to negotiate and manipulate them to maximize your money.