A structured settlement can be a very welcome resolution when a case, such as a personal injury case, is on the verge of being taken to court. Especially if you are the plaintiff. However, in some cases, it will not be financially suitable for the claimant and they make have to consider selling their structured settlement.
Today we look at how structured settlements work, the possible ways to obtain a structured settlement, what to do if you want to sell a structured settlement and a few other things to watch out for in the process.
What is a structured settlement?
A structured settlement is a financial arrangement whereby a claimant agrees to resolve a personal injury claim by receiving periodic payments on an agreed schedule rather than as a lump sum. This is effectively an annuity which is paid for your claim rather than an upfront lump sum amount.
A structured settlement can be implemented to reduce legal and other costs by avoiding trial, but determining the worth of the settlement will take some calculations regarding likelihood of receiving full settlement if taken to court, future earn rates, future inflation rates, etc.
Structured settlements have become common in many countries including Australia, Canada, the United States and here in the United Kingdom.
Who would a structured settlement be useful for?
If you find yourself offered such a settlement, structured in a way that it’ll be paid out over months and years, some people will count themselves lucky. On the plus side, you won’t have to worry about a court case stretching out indefinitely. You may find yourself able to return to work sooner than expected, or even find yourself with more income than you ever had before! This is the best case scenario.
Therefore, each person’s situation is unique and you should take the time to consider the pros and cons in your situation and talk to an experienced lawyer before making the final decision.
For some unfortunate souls, the court and resolution process may go ahead, but not go so smoothly and the claimant may have no other choice to accept a structured settlement, even if this is not the right choice for them. Maybe the individual were injured and unable to work, which caused them to bring about the lawsuit in the first place. Maybe they are disabled as a result of the injury in question, unable to return to work and saddled with extreme medical bills!
For such individuals, a structured settlement payment, divvied out a little at a time, may not be what the individual requires financially and in certain cases, it may be the right financial decision to consider selling your structured settlement, to receive a lump sum today.
Should you sell your structured settlement?
If you have received a structured settlement, and you have calculated that a lump sum payout will be beneficial for you in the long-run (maybe you have high-interest, short-term debt to settle), companies, like iSettlements, will buy your structured settlement, and other financial products like annuities and even lottery winnings.
However, when selling a structured settlement, it’s vital that you shop around. All companies will only offer you a discount to the annuity value to provide you with a lump sum, but ;any will offer to buy your settlement for a lot less than it’s worth, especially if they think you are in a position of distress.
On the one hand, it’s great to have a lump sum, but you also want to make sure that you get as much of your settlement as you possibly can. When shopping for settlement buyers, get a lot of numbers up front before settling on one or the other.
Other things to consider
There is one last hoop to jump through, even if you’ve decided to sell your structured settlement and you’ve made the selection of company. You’ll have to get a state court to sign off on the sale. This may seem counter-intuitive, but this bit of legislation is in place for a good reason. Some people try to sell their settlements to buy things they don’t really need – like a cruise.
In the judgment of the courts, purchases like these will not benefit you in any long term financial way, and are thus not permitted as justifications for the sale of a structured settlement. This is very sensible protection for the consumer, which is acutally quite refreshing! Allowed reasons include paying off a high interest debt, paying the down-payment on a home, buying a vehicle that you need to get a job, paying for additional schooling to earn more income, etc.
The reasons are more diverse than the ones listed, but the motivations behind them are all similar. They need to be a decision which helps you financially in the long-term.
Initially in a personal injury case, it may or may not be your decision to take a structured settlement. If you have the decision, then you need to consider carefully the financial “net present value” of the offer and whether the discount to the potential lump-sum is worth suffering in your particular case.
If your only option is to take a structured settlement, but regular payments in annuity do not match your needs, then it’s up to you if you want to sell your structured settlement. For a lot of people, the option of a lump sum payment is the right one financially, even if it does mean giving up some value in the NPV of the annuity vs the settlement amount today.
Just remember, if you are in the boat where you are considering selling your structured settlement, do your homework!! Don’t rush into any decisions, do the maths to ensure you have considered the worth of each option, do the research to get the best price possible, make sure that you consult with an expert and always use the money for something that will improve your station in life.