INFO: What Is a Structured Settlement?
If you've been in an accident, won or settled a lawsuit, or received a payout, you may receive a structured settlement annuity. What this means is that you receive your settlement in monthly payments rather than a single lump sum.
A structured annuity can last for a set period of time, 30 years for example, or until the death of the beneficiary.
If you need to pay off debts, have medical bills, or are facing a significant expense, you may want your cash up front. There are many services that buy structured annuities in exchange for a single cash payout.
Pros and Cons
There are benefits and drawbacks to selling your structured settlement. Here are just a few you should consider:
You get immediate access to your money instead of receiving it monthly over several years.
The lump sum of your settlement retains the same tax status as your initial settlement. An insurance settlement is tax free, so, too, are the proceeds from selling one.
You can sell a portion of your settlement without depleting the entire annuity.
When you sell your structured annuity, you give up future value for present gains. Structured settlement companies take into account the depreciation of future earnings and apply a discount rate to your settlement (more on that below). What this means is for a $100,000 settlement, you can expect to receive anywhere from $30,000 to $50,000.
It can sometimes take months for the paperwork to be completed and for a judge to approve the sale. If you need money immediately, you may want to look into alternate ways to get it.
If you rely on your structured settlement to pay bills, selling is unwise. You can compromise your income stream and leave yourself at risk for dire financial consequences.
In fact, you may have seen a commercial or even been contacted by one of these companies since they market their services aggressively. Many brokers will offer different types of structured settlement loans as well.
In these situations, you can borrow cash against your structured settlement, just like you can with a loans against any other type asset.
You can sell the entirety of your structured settlement or a portion of it. Many factors affect the amount you'll ultimately receive, including the total amount of the settlement you're selling, the number of payments you're selling and how often these payments are made.
The process for selling a structured settlement is lengthy and needs to be approved by a court. Usually it takes between two to three months to complete a sale.
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