Structured Settlement Payments – If you have been awarded a structured settlement as a result of a lawsuit, lottery win, or annuity purchase, you may be receiving regular payments over a period of time. While this can provide you with a steady income stream, you may also face situations where you need a large amount of cash upfront.
For example, you may want to pay off debt, buy a house, start a business, or fund your education. In such cases, you may consider selling some or all of your future payments to a settlement buyer or factoring company in exchange for a lump sum of cash. This process is known as cashing out or liquidating your structured settlement.
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However, before you decide to cash out your structured settlement, there are some important factors that you need to consider. Cashing out your structured settlement can have significant financial and legal implications, so you need to weigh the pros and cons carefully and consult with a professional advisor if possible. Here are some of the main aspects that you should know about cashing out your structured settlement:
How cashing out works
Cashing out your structured settlement involves transferring the rights to receive future payments to a third-party buyer who will pay you a discounted amount of cash upfront. The discount rate is the percentage that the buyer deducts from the total value of your payments to account for the time value of money and the risk involved in the transaction. The discount rate can vary depending on the market conditions, the duration and amount of your payments, and the reputation and fees of the buyer.
To cash out your structured settlement, you need to find a reputable and licensed buyer who will offer you a fair and competitive quote for your payments. You can compare different offers from different buyers online or through referrals from friends or family. Once you choose a buyer, you will need to provide them with some documents and information about your structured settlement, such as the annuity contract, the court order approving the settlement, and your personal identification.
The buyer will then review your documents and perform a background check to verify your eligibility to sell your payments. If everything is in order, the buyer will send you a contract that outlines the terms and conditions of the sale. You will need to sign and return the contract along with any additional documents that the buyer may require.
The next step is to obtain court approval for the sale. This is a mandatory requirement in most states to protect your best interests and ensure that the sale is in compliance with the law. The buyer will file a petition with the court that issued the original settlement order and request a hearing date. You will need to attend the hearing and explain to the judge why you want to sell your payments and how it will benefit you and your dependents. The judge will then review your case and either approve or deny the sale.
If the court approves the sale, the buyer will notify the insurance company that issues your payments and instruct them to redirect the payments to them. The buyer will also send you a final closing statement that confirms the details of the sale. Once you sign and return the closing statement, the buyer will wire or mail you the agreed-upon lump sum of cash. The whole process can take anywhere from 30 to 90 days depending on the complexity of your case and the state laws.
The benefits of cashing out
Cashing out your structured settlement can have some advantages depending on your personal and financial situation. Some of the benefits include:
- You can access a large amount of cash quickly and use it for any purpose that you want.
- You can pay off high-interest debt, such as credit cards or personal loans, and save money on interest charges.
- You can invest in opportunities that offer higher returns than your structured settlement payments.
- You can buy a home, car, or other big-ticket items without taking out a loan or mortgage.
- You can fund your education or training and increase your earning potential.
- You can start or expand a business and generate more income.
- You can cover unexpected expenses, such as medical bills, legal fees, or home repairs.
- You can achieve financial freedom and flexibility by having more control over your money.
The drawbacks of cashing out
Cashing out your structured settlement also has some disadvantages that you need to be aware of. Some of the drawbacks include:
- You will receive less money than what your payments are worth in total due to the discount rate applied by the buyer.
- You will lose the tax benefits of receiving tax-free income from your structured settlement payments.
- You will reduce or eliminate your future income stream that can provide you with financial security and stability.
- You may face legal challenges or penalties if you violate any terms or conditions of your original settlement agreement.
- You may incur additional costs or fees associated with selling your payments, such as legal fees, broker fees, or taxes.
- You may expose yourself to financial risks if you misuse or mismanage your lump sum of cash.
- You may regret your decision if your circumstances change or you encounter unforeseen difficulties in the future.
How to make an informed decision
Cashing out your structured settlement is a major decision that can have lasting consequences for your financial well-being. Therefore, you should not rush into it without doing your homework and considering all the pros and cons. Here are some tips to help you make an informed decision:
- Assess your current and future financial needs and goals and determine how much cash you need and for what purpose.
- Review your structured settlement agreement and understand your rights and obligations regarding selling your payments.
- Shop around and compare different offers from different buyers and negotiate the best deal possible.
- Consult with a professional advisor, such as a lawyer, accountant, or financial planner, who can help you evaluate the benefits and risks of cashing out and advise you on the legal and tax implications.
- Seek independent legal counsel before signing any contract or agreement with a buyer and make sure you understand all the terms and conditions.
- Be prepared to justify your reasons for selling your payments to the court and demonstrate how it will improve your situation.
- Be aware of the potential pitfalls and challenges of managing a large sum of cash and plan ahead on how to use it wisely and responsibly.
How to find a reputable and licensed settlement buyer
Finding a reputable and licensed settlement buyer is an important step if you want to sell your structured settlement or annuity payments for a lump sum of cash. You want to make sure that the buyer is trustworthy, reliable and offers you a fair deal. Here are some tips on how to find a reputable and licensed settlement buyer:
Check the licensing and accreditation of the buyer
Most states require settlement buyers to be licensed and registered with the state authorities. You can check the list or registry of licensed settlement buyers in your state on the website of your state’s insurance department or attorney general’s office. For example, if you live in California, you can visit the Office of the Attorney General website and look for the section on real estate agencies/agents, which also covers settlement buyers. You can also check if the buyer is accredited by the Better Business Bureau (BBB) or other reputable organizations that monitor the ethical standards and customer satisfaction of businesses.
Compare different offers from different buyers. You should shop around and get quotes from at least three or four different settlement buyers before making a decision. You can compare the offers based on the amount of cash they are willing to pay you, the discount rate they are applying to your payments, the fees and costs they are charging you, and the time frame they are promising to complete the transaction. You should also ask for references from previous customers and check their reviews and testimonials online.
Negotiate the best deal possible. Once you have narrowed down your options, you should try to negotiate with the buyer to get the best deal possible. You can ask them to match or beat the offers from other buyers, lower their discount rate or fees, or speed up the process. You should also make sure that you understand all the terms and conditions of the contract before signing it and that you have a copy of it for your records.
Seek professional advice if needed. Selling your structured settlement or annuity payments is a complex and irreversible decision that can have significant financial and legal implications. Therefore, you should seek professional advice from a lawyer, accountant, financial planner, or other qualified experts if you have any doubts or questions about the process. They can help you evaluate the pros and cons of selling your payments, advise you on the tax and legal consequences, and protect your rights and interests.
In conclusion, Cashing out your structured settlement can be a viable option for some people who need immediate cash for a valid reason. However, it is not a decision that should be taken lightly or without careful consideration. By following the steps above, you can make a smart and informed choice that suits your best interests.
Structured Settlement Payments: Frequently Asked Questions (F&Qs)
What is the fee for a structured settlement?
The fee for a structured settlement can vary. The standard commission charged by all life insurance annuity providers for their services is typically around 4%. This commission is the same for every structured settlement annuity.
When it comes to attorney’s fees, if you hire an attorney to handle your personal injury case, you usually sign a fee agreement that provides that your attorney be paid a contingency fee upon conclusion of the case, whether it settles or goes to trial. This is typically 20%-40% of the settlement amount or jury award.
Please note that these percentages can vary depending on the specifics of the case and the agreement between the parties involved. It’s always a good idea to clarify these details before entering into a structured settlement agreement.
How long does it take to get money from a structured settlement?
The process to cash out your structured settlement usually takes 45 to 90 days. However, the transfer can take as little as 20 days. This process includes court approval, which is legally required for selling your structured settlement. It may seem like a long time, but the process is meant to protect you.
How does a structured payout work?
A structured settlement is a payment arrangement that can result from a civil lawsuit, in which a plaintiff sues a defendant seeking damages. Instead of the defendant compensating the plaintiff with a single lump sum of money all at once, structured settlements allow the defendant to make periodic payments over an agreed schedule.
Here’s how the process typically works:
- An accident victim pursues a claim against a defendant that is settled.
- The parties agree on compensation as a structured settlement.
- The plaintiff releases the defendant from further liability as part of the settlement agreement.
- The defendant funds the settlement. In many cases, the defendant purchases an annuity from an insurance company, which is then responsible for the series of payments.
These payments are managed through an annuity or trust account and given out over time according to a planned schedule. This provides a predictable and steady income stream as an alternative to a lump-sum payment. The annuity’s design ensures the plaintiff receives regular, scheduled payments over a set period or for their lifetime.
In some instances, U.S. Treasury securities fund structured settlements. Here, a trust holds the Treasury securities, generating regular interest payments. The plaintiff then receives these payments according to the structured settlement terms.
Regardless of the funding source, the structured settlement’s objective remains to provide the plaintiff with a consistent income stream over a specified period.