Structured settlements are a stream of guaranteed tax-free annuities issued to an injured party. It is a way of paying or settling a claim for damages or injuries in a lawsuit over a specified period or for life.
When someone or some company pays money to another to right a wrong, they may agree to the settlement on their own, or they may be forced to pay when they lose the case in court.
Selling Structured Settlement Payments
Selling structured settlement payments could be stretched out in installments through a structured settlement annuity for large sums, but the wronged party may also have the option to receive a lump sum settlement if the amount is small.
These settlements are guaranteed by the insurance company that issued the annuity and do not fluctuate with market changes like stocks, mutual funds, or bonds.
Structured settlements could come in the form of personal injuries, wrongful deaths, workers’ compensation, medical malpractice, car accidents, punitive damages, and more.
Why Sell a Structured Settlement?
Financial situations can change. Though your annuity payments have served their purpose up to this point, you have the option to sell the rights to your future payments and gain financial freedom and flexibility to spend and invest your money strategically.
You should know you’re within your rights to sell your settlement — however, it is dependent on a judge’s approval. Your reason for selling must be compelling, as judges approve settlement sales based on whether they’re in your best interest.
So, what are some compelling reasons or situations for selling your structured settlement for cash?
Purchasing a house — After years of paying rent, home ownership can be a welcome change. It means saving money, stopping paying interest over time, and having something tangible that can come in handy to sell if another pressing need arises. Paying off a mortgage is a valid reason for selling your structured settlement payments, especially if the accident left you unable to work.
Starting or expanding your business — Your sale of structured settlements can be approved on the grounds of wanting to start or grow a business, especially if it’s your or your family’s sole source of income. Judges evaluate whether the sale is in your personal best interest — not driven by outside influence — and you must show you’re capable of operating or expanding the business.
Investing the money — Selling your structured settlement to invest the lump sum may be approved. However, investing in stocks or bonds may be disapproved due to market risk. It is advisable to pick options outside the stock market, such as equipment that would increase profits — and be prepared to explain to the judge how it will benefit you.
Financing a college education or paying off student loans — Paying college tuition upfront without a loan, or paying off existing student loans, are both valid reasons to sell. Provide evidence such as your acceptance letter and the college’s tuition rates.
Accommodating family changes — Family changes such as expecting a new baby can be considered a valid reason for selling some or all of your future payments, as it can provide financial relief.
Covering medical expenses — Medical bills from surgery, dental work, therapy, car accidents, or emergencies are unpredictable and unavoidable. Provide medical statements and letters for the judge’s approval.
Making home repairs — If your home is in need of repairs or renovations and you do not have immediate funds, this is a valid reason that can be considered with evidence.
Buying or repairing your vehicle — This can be difficult for a judge to approve, as the court will want to confirm it is a necessity rather than a luxury. Prepare the necessary evidence beforehand.
How to Sell Structured Settlement – Best Tips
Most times, selling all or a portion of your future structured settlement payments may be the best way to obtain a lump sum for an unexpected expense, such as a large medical bill, depleting tuition loans, or urgent home renovations.
By knowing what to expect and being prepared each step of the way, you can sell your structured settlement payments with confidence.
Note: Enlisting the help of a trusted, experienced attorney or financial advisor in the structured settlement secondary market is the first step you should consider. This ensures you’re making the right decision and protects you from unscrupulous buyers.
#1: Study and Appraise Your Needs
Ask yourself: What is my need? How much do I need? Do I need to sell part or all of my structured settlement payments?
Keep in mind that the total amount of payments you would receive over time will be higher than the lump sum a purchasing company offers. Also note that you can sell half a year’s payments rather than the full settlement. Make sure your estimated need is accurate — a judge may doubt your financial judgment if the first sale isn’t sufficient and you return for a second.
#2: Research Potential Purchasing Companies and Get Quotes
Contact more than one purchasing company — known as factoring companies — for a quote. Getting multiple quotes helps you compare options and be confident in your final choice.
Most companies offer free quotes to help you understand the process and determine the number of payments you would need to sell to get the cash you need. Ensure each offer includes all fees and commissions in writing so you can make a fully informed comparison.
#3: Evaluate and Assess Your Options
Compare the offers, read each piece of paperwork carefully, ask questions, and investigate the factoring companies if necessary. With the help of your attorney, weigh your options and make your decision.
#4: Choose Your Company and Complete the Paperwork
Once you’ve selected a company, your attorney will help you navigate the legal documentation. Required paperwork typically includes:
- A completed application
- Two forms of identification
- Copy of the original structured settlement and release agreement
- Copy of your annuity policy
Once you’ve completed this step, you’ve officially agreed to sell your payments.
#5: Ask for an Advance (Optional)
If you need money immediately, you can ask for a cash advance — a partial payment to hold you over while the process is completed. It can take up to three months to receive your full lump-sum payment.
#6: Get Court Approval
A court hearing is standard practice since structured settlements stem from litigation. The factoring company will arrange and prepare the paperwork for you to appear before a judge in your state. The judge will ascertain whether the transaction is in your best interest, considering factors such as the welfare of your dependents.
After the court approves the transaction, send a copy of the order to the administrator of your structured settlement.
#7: Receive Your Money
After approval, the purchasing company will provide your full payment as stated in your agreement. This typically happens within three to five business days of the court’s approval.
Note: If you owe any past-due child support or have any tax liens, these will be subtracted from your lump sum before you receive the money.
How Much Is My Structured Settlement?
Structured settlement payments have different payout options — some can be paid out as a lump sum, or through periodic annuity payments over time. The key differences between these options lie in long-term financial security and taxes.
The most common reasons an individual may receive a structured settlement include:
- Personal injury
- Medical malpractice
- Workers’ compensation
- Wrongful death
- Inherited settlements
Your structured settlement is technically worth the present value of your contract and does not fluctuate — it neither increases nor decreases in value. However, when you sell your payments, that is not the amount you will receive.
When selling, the factoring company calculates the present value using a formula that takes the future value of your payments and subtracts the growth potential the company would lose by not having the money in hand to invest immediately.
You will be charged a discount rate of typically 9–18%, which accounts for the risks the buyer is inheriting. The company also considers the number of payments you’re selling, the dates of payments, current market rates, economic conditions, and any service fees.
A structured settlement calculator can provide a useful estimate, but bear in mind it cannot account for all the detailed terms of your contract — use it as a starting point only.
Factors for calculating your structured settlement:
- Time — When are you scheduled to receive payments? Different timeframes carry different values.
- Total — What is the amount of each payment? The size of each future payment impacts the overall sum you can walk away with.
- Frequency — How often do you receive payments? Monthly or annual installments? Structured settlements can be designed differently.
Benefits of Selling My Structured Settlement
a) Liquidity — Structured settlements can be a lifesaver if you encounter a need for more money than your periodic payments can provide at once, or face situations that demand a large sum of cash immediately — such as medical care, home foreclosure, or looming debts. A lump sum can address the expense and provide peace of mind that extends beyond finances into your health and well-being.
b) Money Management — Structured settlements have a built-in money management structure, with spread-out payments paid over a predetermined time at pre-agreed amounts. This helps protect you from poor investments, overspending, and other common financial problems.
c) Safe from Market Inconsistencies — Unlike stocks, bonds, and mutual funds, your structured settlement funds do not fluctuate with market changes. Your payments are guaranteed by the issuing insurance company and will not deplete in a crashing market or increase in a flourishing one — making them secure and easier to plan around.
d) Cost of Living Adjustments — A structured settlement can be set up with cost-of-living fluctuations in mind, designed to adjust yearly to more accurately meet your day-to-day needs. Spreading payments over time also reduces the temptation to make large, extravagant purchases and guarantees future income — especially valuable for recipients with long-term medical care needs.
e) Safe from Outsiders — The funds in a structured settlement are not accessible by the recipient’s creditors or ex-spouses, making them protected in the event of a divorce or legal claim.
f) Minimal Tax or Tax-Free — Most elements of a structured settlement are non-taxable, including physical personal injury, car accident settlements, and medical expenses. Putting your settlement into a structured payment plan can also prevent a large one-time tax burden. Exceptions include money settled from purely emotional damage, lost wages, and punitive damages.
g) Interest Possibility — Some structured settlements can yield interest over time, potentially making your settlement worth more as periodic payments than as an upfront lump sum.
Conclusion
Structured settlements are a way of paying or settling a claim for damages in a lawsuit on a periodic basis over a specified period or for life. They are increasingly popular among insurance companies, plaintiffs, and defendants.
A structured settlement can be very flexible in design — payments can be set to increase at specific points in time, indexed at a fixed interest rate, or include a series of lump-sum payments.
Selling structured settlement payments is easier than it sounds. It may take 45–90 days for the process to complete. Do not forget to involve the guidance of a trusted, experienced advisor in order to protect yourself from unscrupulous buyers.