Some people say it’s never advisable to sell your structured settlement, as you will always lose money. But selling can be a wise decision under certain conditions.
Whether or not it makes sense to sell a structured settlement depends upon your specific situation. Learning the details of what a structured settlement actually is and the implications of selling under various conditions can help you make an informed decision.
- What Is a Structured Settlement?
- When Is a Structured Settlement Awarded?
- Rules Governing Structured Settlements
- When Should You Take a Lump Sum Payment?
- Should You Sell Your Structured Settlement?
- Good Reasons to Sell Your Structured Settlement
- How Do I Sell My Structured Settlement?
- Contact High Rise Financial for the Help You Need
What Is a Structured Settlement?
A structured settlement is when money is paid to compensate for an error, an accident, or an action by another that harmed the person receiving the settlement. Structured settlements can be awarded as a result of:
- Personal lawsuits
- Workers’ compensation claims
- Medical malpractice cases
- Wrongful death lawsuit verdicts
Structured settlements distribute the money owed via a series of tax-free payments over a pre-determined time.
Sometimes, a defendant in a court case will voluntarily agree to pay a structured settlement before the lawsuit goes to court. However, if the case does go to court and the defendant loses, a judge will decide how much of a structured settlement will be paid to the plaintiff (the person who filed the charges for damages).
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When Is a Structured Settlement Awarded?
If the amount of the settlement is moderate, the plaintiff might receive the sum in a single payment. This is often the case when there is minimal damage to a vehicle or another type of issue causing minor damage or injury. The plaintiff would likely receive a single check with a lump sum payment.
However, some settlements result in very large awards, perhaps hundreds of thousands of dollars or more. When settlements are high, the judge may determine that the plaintiff will receive a series of payments through a structured settlement.
Rules Governing Structured Settlements
When a structured settlement is determined by a judge or agreed upon in an out-of-court settlement, the party at fault will put the money into an annuity. Annuities are financial products that secure payments for people receiving settlements through insurance companies. They work similarly to insurance, but in this case, they are used to transfer money from one person to another.
Annuities may not suit everyone, but if you are the recipient of a structured settlement, you might not have a choice. Nevertheless, you can choose the amount of each payment, the scheduled frequency, how long the payments will continue, and whether the amount will be larger at certain points.
When Should You Take a Lump Sum Payment?
As the plaintiff, you can opt to take a deferred annuity, which postpones payments, or you can take an immediate annuity and begin the payments immediately. If you need the money right away, you might want to take the immediate annuity option.
However, deferring payments would net you more cash over the long term, as interest is paid on the balance of an annuity. You need to think carefully before choosing to defer the annuity because once it is deferred, you pay a 10% penalty in addition to income tax for any withdrawals made before you turn 59½ years old.
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Should You Sell Your Structured Settlement?
It should be stressed that the answer to the “sell or not to sell” question depends on your specific situation, but take a look at the implications of each option below.
Why Selling a Structured Settlement Doesn’t Usually Make Sense
Selling a structured settlement means giving up guaranteed tax-free payments. Keeping the money in an account that is not easily accessible also keeps you from spending it frivolously.
You would also be giving up the opportunity to earn a significant interest rate. Remember, structured settlements, in most cases, garner you more money than you would have received if you had simply taken the lump sum awarded.
Just because you can sell a structured settlement does not mean it’s the right move. For most people, it’s likely not.
Why Selling Your Structured Settlement Might Be Beneficial
Regardless of who you sell your settlement to, you’re selling it at a discount. However, in some cases, selling could potentially make sense or perhaps even bring you greater future benefits.
Selling a portion or all of your future structured settlement payments could be a good way of obtaining a lump sum of money to cover essential or unexpected expenses. Obtaining a buyout of a structured settlement can work out. Just be certain you’re doing it for the right reason.
Good Reasons to Sell Your Structured Settlement
A vacation or a spending spree is not a good reason to sell your structured settlement. If you are considering selling a structured settlement, discuss the numbers with your financial advisor. Examples of why you could sell your structured settlement include:
- To pay for current essential medical care costs
- To pay off a large amount of debt
- To make a home purchase
If you’re a savvy investor or you’re willing to trust a reputable investment firm, and if the discount for selling your structured settlement isn’t too much, you could make up for the cash lost in the settlement sale. Your money might even grow past the balance it would have attained as an annuity.
How Do I Sell My Structured Settlement?
You can sell your structured settlement to a factoring companyto receive cash immediately. Although you must obtain court approval first, you have the legal right to cash out your payments, either in part or in full, to a structured settlement buyer.
Contact High Rise Financial for the Help You Need
Various options are available for pre-and post-lawsuit legal funding. High Rise Financial provides pre-trial financing that is later repaid with a percentage of your settlement, which means you never owe us more than the amount of your financial judgment.
As there’s no risk involved with pre-trial financing, why not contact us today to discuss the details about selling your structured settlement.