Structured settlements are a form of financial agreement where a person receives periodic payments instead of a lump sum after settling a lawsuit, often related to personal injury, medical malpractice, or worker’s compensation cases. For people receiving these payments, the money can be a reliable source of income for many years. However, sometimes life circumstances change, and individuals may need access to a large sum of money upfront. This is where companies that purchase structured settlements come in.
In this blog post, we will explore what structured settlements are, why someone might want to sell theirs, how the process works, and what factors to consider before making such a decision.
What Are Structured Settlements?
Structured settlements are typically agreed upon as a way to compensate someone who has been harmed due to another party’s negligence. Instead of receiving one large payment, the recipient agrees to receive smaller, periodic payments over time. This could range from monthly, quarterly, or yearly payments, and may last for several years or even a lifetime, depending on the settlement terms.
The purpose behind structured settlements is to ensure that the recipient has a steady stream of income to cover long-term medical expenses, living costs, or any other financial needs related to the injury or incident. These payments can also offer significant tax benefits, as many structured settlements are tax-free under U.S. law.
Why Do People Sell Their Structured Settlements?
Even though structured settlements provide financial security, there are times when the payment schedule may not align with a person’s immediate financial needs. Life is unpredictable, and situations such as sudden medical emergencies, urgent home repairs, debt obligations, or education costs may arise. In these cases, receiving a lump sum of cash might be more beneficial than waiting for scheduled payments over time.
Selling structured settlements can be a solution to get quick access to funds for emergencies, investing in a business, or paying off large debts. However, it’s important to understand that selling your settlement comes at a cost, as buyers of these settlements will often purchase them for less than their full value.
How Does the Purchase Process Work?
The process of selling your structured settlement typically involves a few key steps:
- Assessing Your Settlement: The first step is to assess the details of your structured settlement, including the amount of money you are receiving and the length of the payment schedule. You can choose to sell a portion of your future payments or the entire settlement.
- Finding a Buyer: There are many companies that specialize in purchasing structured settlements. It’s important to do your research and find a reputable buyer. Comparing quotes from different companies is essential, as each company will offer a different lump sum based on their evaluation of your settlement.
- Receiving an Offer: Once you’ve found a buyer, they will make an offer to purchase your structured settlement. Typically, the offer will be less than the total value of the settlement, as the company is taking on the risk and aiming to make a profit.
- Court Approval: Selling a structured settlement is not as simple as signing a contract. In most cases, the sale must be approved by a judge. The court will review the sale to ensure it’s in the best interest of the seller, particularly if the seller is a minor or otherwise vulnerable.
- Receiving Your Payment: After the court approves the sale, the structured settlement purchasing company will release the lump sum payment to you. This process can take several weeks or even months depending on the complexity of the transaction.
Factors to Consider Before Selling
While selling a structured settlement can provide immediate financial relief, it’s important to weigh the pros and cons before making a decision.
- Loss of Long-Term Security: Structured settlements are designed to provide long-term financial security. By selling part or all of your payments, you are giving up that future security. If you rely on your settlement to cover ongoing medical or living expenses, selling could put you at risk in the future.
- Discounted Sale Price: When you sell your structured settlement, you won’t receive the full value of your future payments. Companies that purchase settlements do so at a discount, meaning you’ll likely receive a lump sum that is significantly less than the total amount you would have received over time.
- Legal and Court Fees: The process of selling a structured settlement involves legal fees, and in some cases, court costs. These additional expenses can reduce the amount of money you walk away with after the sale.
- Tax Implications: While structured settlement payments are typically tax-free, selling your settlement could have tax implications depending on how the transaction is structured and your personal tax situation. Consulting with a financial advisor is recommended to fully understand any tax consequences.
- Your Financial Situation: Before deciding to sell, it’s important to assess your financial situation. Are there other ways to raise the money you need, such as taking out a loan or adjusting your budget? Selling your structured settlement should be a last resort after exploring other options.
Choosing a Reputable Buyer
If you decide that selling your structured settlement is the best option for you, it’s critical to choose a reputable buyer. The industry is regulated, but not all companies operate with the same level of transparency or customer service. Here are a few tips to help you choose the right buyer:
- Check Reviews and References: Look for customer reviews online and ask the company for references. A reputable company will be happy to provide testimonials from previous clients.
- Compare Offers: Don’t accept the first offer you receive. Different companies will evaluate your settlement differently, so it’s essential to get multiple quotes before making a decision.
- Understand the Terms: Make sure you fully understand the terms of the sale. How much will you receive upfront? Are there any hidden fees? What is the discount rate the company is using to determine your lump sum payment?
- Legal Assistance: It’s always a good idea to consult with a lawyer who specializes in structured settlements before finalizing a sale. They can review the contract and ensure that the terms are fair.
Conclusion
Purchasing structured settlements can provide a financial solution for individuals who need access to funds quickly, but it’s not a decision that should be made lightly. Understanding the process, evaluating your financial needs, and choosing a reputable buyer are all critical steps in ensuring that selling your structured settlement is in your best interest.
Always consult with a financial advisor or legal expert to get a clear picture of the implications and to ensure you’re making the best choice for your financial future. Selling a structured settlement may be a viable option, but it comes with trade-offs that must be carefully considered.