Structured Settlements- The Pros and Cons to Consider

Structured Settlements

Many types of personal injury awards and settlements are paid through structured settlements. This type of settlement involves the paying of an annuity from a company that has an insurance policy. Typically, the amount of a settlement will be far more overall than a lump sum would be for the injured party. It can be difficult for someone to choose which route to take for payments.

Pros and Cons of Structured Settlements

Although structured settlements can be beneficial or unfavorable depending on the circumstances, this arrangement can still be very risky unless you fully weigh the good and the bad of them.

Advantages of Structured Settlements

The primary advantage of lump-sum settlements is that they provide immediate liquidity. However, this can be a bad situation if the person who controls the money is not as responsible as they appear.

The primary advantage of structured settlements is they are tax-free. If you earn interest on the money, this is also taxable. Another advantage to consider is that the interest paid on the settlement is not considered a part of the settlement and is not subject to taxation.

Disadvantages of Structured Settlements

Aside from paying taxes, there are also other disadvantages to structured settlements. In most cases, the victim will be out of luck if the company that’s paying the settlement goes broke. One of the main disadvantages of structured settlements is that they can be very difficult to change. In most cases, the terms of the payment are set so they can’t factor in various factors like inflation.

Another disadvantage of structured settlements is that they are not allowed to be used for qualified funding vehicles such as a trust or custodial accounts.

Selling Payments- Options for Annuity Owners

Before you decide to sell or convert your annuity, make sure the terms of the contract are clear. This can limit your options if something unexpected happens. Many annuity holders can get cash advance payments from structured settlements. This is because these sales are sometimes referred to as structured settlement loans.

Sometimes, the sale of an annuity can be approved by a judge, who is primarily focused on determining the best interest of the individual who owns the annuity. Other rules may also apply depending on the terms of the contract and the laws in the state where you live. Annuity owners need to be careful when they consider selling their payments.

What Does it Cost to Sell Structured Settlements?

The value of a structured settlement is not a single dollar amount. Instead, it is typically appraised using the discount rate, the number of payments left and the number of payments you wish to sell. You can also calculate the present value of your annuity if you know the discount rate and the number of payments that you wish to sell.

Unlike a dollar-for-dollar transaction, selling a structured settlement involves a discounted rate. This usually ranges from 9 to 18% or more. The present value of the settlement depends on the number of payments that you wish to sell and the discount rate.

Where Can People Sell Their Structured Settlements?

You can sell your settlement payments to a factoring company like https://settle4cash.com, which is a company that specializes in purchasing settlements. It is important to do your research before choosing a company to sell your payments to. Compare quotes from different providers to find the best deal.

  • What is the Difference Between an Annuity and a Structured Settlement?

A structured settlement is different from an annuity because it follows a court process. Instead of being paid in full, it is typically secured by an insurance company.

Calculating a Structured Settlement

Let’s say you have a $200,000 annuity and want to receive it annually for 20 years. You can also imagine that the defendant will pay less than $2,000,000 to fund your settlement.

The present value of a structured settlement is usually calculated in terms of its future income stream. This concept refers to the value of an asset that’s currently in a bank account.

How much money does the insurance company need to pay you and your heirs to fund the settlement? The quick answer is that it will require less than $2,000,000.

Unfortunately, this calculation is very complex and requires the assistance of an economist. Usually, an attorney will help you figure it out so you can make the best decision.