Selling Structured Settlement Payments- Step-step Guide

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 the money when they lose the case in court.

Table of Contents

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 small. But these settlements are guaranteed by the insurance company that issued the annuity also they 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, etc.

Why sell a structured settlement

Financial situations can change and 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 cos 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 which will mean saving money, stopping paying interest over time, and having something tangible that can even come in handy to sell if another pressing need arises.

Purchasing a home or paying off your mortgage are valid reasons for selling your structured settlement payments cos the accident that led to the settlement, for example, may have left you unable to work and meet your mortgage payments or a change in your relationships, such as a divorce, etc.

All you need to do is to focus on the long-term benefits of selling your structured settlements.

Starting or expanding your business

Your sale of structured settlements can be approved on the grounds of you wanting to start or grow your business especially if it’s your or your family’s sole source of income.

This is because Judges evaluate whether the sale is in your personal best interest, not that you are being influenced by friends or family to start one. You must also show that you are capable of operating that business or you give reasons for wanting to expand as what you present will likely impact their ruling.

Investing the money

Selling your structured settlement to invest the lump sum may be considered and approved by the Judge. However, investing in stocks/bonds may likely be disapproved as it is a fluctuating market and presents financial risk.

So, If you want to sell your structured settlement for cash to invest, it is advisable you pick options available outside the stock market, like equipment that would increase profits and enable you to take on additional clients but whatever you have in mind l, you should be prepared to answer any questions from the judge on how it’ll benefit you or your company.

Financing a college education or paying off student loans

A case can be made for selling your structured settlement to start or continue your college education. So, this means paying your college tuition upfront, without a loan, or paying off your college loans, are both valid reasons to sell your structured settlement for cash.

All you need to do is provide evidence before the Judge such as your acceptance letter, the college’s tuition rates, etc.

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 give you financial relief.

Covering medical expenses

Medical situations like surgery, dental work, therapy, car accidents, and even major emergencies result in course bills. These are unpredictable, unplanned and most times unavoidable.

So, medical bills are why many people could decide to sell their structured settlement payments to cover their bills. For approval by the Judge, medical statements and letters should be provided.

Making home repairs

One of the basic needs of man is shelter, a comfy place one can call home. And due to the importance of having a home, if your home is in need of repairs or renovations, you may be able to use cash from selling your structured settlement to help cover the cost, if you do not have immediate funds for such. It is a valid reason and can be considered by the Judge with evidence of course.

Buying or repairing your vehicle

This could be tedious and most times quite difficult for a Judge to approve. This is because the Judge will want to make sure it is a step out of necessity and not pleasure, so you will not stand financial risk tomorrow. Needed evidence to show to the Judge should be in place.

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 for you to obtain a lump sum of money for an unexpected expense, such as a large medical bill, depleting tuition loans, or urgent home renovations.

By knowing what to expect, how to go about it, 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 to guide you through the process, is the first step you should consider, and then you can be certain, you’re making the right decision and again protecting yourself from dubious, unscrupulous buyers.

#1: Study and Appraise your needs

What is my need? How much do I need to meet this need? Do I need to sell part or the whole of my structured settlement payments to meet this need?

Answer these questions to yourself and decide how much you need, keeping in mind that the total amount of the payments you would receive over time will be higher than the amount you will get from a company that purchases the rights to the payments also note that you can sell half a year’s payments.

Lastly, make sure the estimation and evaluation of your need are accurate as a Judge may doubt your ability to handle your finances and may be less willing to approve the second transaction if the first is not enough.

#2. Do your research for potential purchasing companies and get quotes.

Contact more than one purchasing company— known as factoring companies— for a quote.

It’s often a good idea to get more than one quote from different purchasing companies so you can be confident of your choice in the end.

Most such companies offer free quotes to help you understand how it works and determine the number of payments you would have to sell to get the amount of cash you need.

This will also help you have a better idea of how much money you can get for your payments.

Lastly, make sure each offer includes in writing all the fees and commissions the companies will require you to pay. It’s best to go into any such transaction with all cards laid bare and this will also help you have a better idea of how much money you can get for your payments.

With this knowledge, you may want to revisit step one.

#3. Evaluate and access your options

Compare the offers, read each piece of paperwork meticulously, in-between lines, ask questions, and investigate the factoring companies if need be.

With the help of your attorney, do the necessary comparison, weigh your options and make your decision.

#4. Choose your company and conclude the paperwork.

Once, you have selected the company then, your attorney will help you navigate all necessary legalese and file the documentation.

The required paperwork will include:

A completed application
Two forms of identification
Copy of the original structured settlement and release agreement
Copy of your annuity policy, etc.

Once you’ve completed the step, you’ve officially agreed to sell your payments.

#5. Ask an Advance

This is an optional step, that is, if you need money immediately, you could ask for a cash advance. This will be a partial payment to hold you over until the process is complete. It can take up to three months to receive your lump-sum payment.

#6. Get court approval.

This may sound intimidating but on the contrary, it’s in your best interest since structured settlements stem from litigation, a court hearing is standard practice.

The factoring company you’re working with will make all the arrangements and prepare the paperwork for you to appear before a Judge in your state. The Judge then will ascertain if the transaction is in your best interest, with consideration to other factors like the welfare of your dependents when deciding whether to approve the sale.

But after the court’s approval of the transaction, you will then send a copy of the order to the administrator of your structured settlement.

#7. Receive your money

After the approval, the purchasing company will then provide your full payment as stated in your agreement

Typically, this 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 can receive the money.

How Much Is My Structured Settlement?

Structured settlement payments have different payout options, some can be paid out at once -as a lump sum- or through annuity-a structured settlement where periodic payments are made.

The key differences between these settlement options are in the areas of long-term financial security and taxes.

There are quite a number of reasons an individual may receive a structured settlement. The most common causes are:

Personal injury
Medical malpractice
Workers’ compensation
Wrongful death
The inherited settlement, etc.

So, whichever the case, your structured settlement is technically worth the present value of your contract, it does not fluctuate- that is, it does not increase in value nor does it go down- but if you are to sell your payments, that is not the amount you will receive.

In selling your payments, the factoring company calculates the present value using a formula that takes the future value of your payments (this is because the company will not receive the money until some date in the future) and subtracts the growth potential the company will lose by not having the money in hand to invest immediately, that is:

When you sell your future payments, you will be charged a discount rate, which is often between 9 and 18 percent, this is to account for the risks the buyer is inheriting along with the rights to your future payments.

In addition to the present value of your settlement, the company takes into account the number of payments you’re selling, the dates of your payments, current market rates, economic conditions, and any service fees associated with the transaction to arrive at your discount rate.

A structured settlement calculator can get the process of selling your structured settlement underway by giving you an estimate but bear in mind that no calculator can account fully for all features or the detailed terms of your contract. You can only use the estimate as a starting point and expect quotes using a basic formula as it tends to vary among purchasing companies.

Factors for calculating your structured settlements

Time: When scheduled to receive payments? As different timeframe for payments has different values.
Total: What’s the amount of every payment? The size of each future payment impacts the overall sum you can walk away with.
Frequency: How often do you get payments? Monthly or annual installments? Structured settlements can be designed differently.

See How a Financial Coach Can Help You in calculating your structured settlements

Benefits of Selling My Structured Settlement

a). Liquidity

Structured settlements not only offer years-long financial security but also can be a lifesaver -sometimes literally- if you encounter a need for more money than your periodic payments can provide at once, or if you run into situations that demand a large sum of cash immediately.

Immediate situations like medical care (and you have limited or no insurance), issues with the bank, home foreclosure, looming debts, etc- the list of financial hardships can be endless- the benefit of selling a portion of your settlement is the lump sum of cash that can not only allow you to address the expense, but also give you peace of mind.

Sometimes you might just have to make the decision between your future financial security and your immediate needs because selling your structured settlement can ease your anxiety and this benefit extends beyond the financial but also into your health and well-being.

Also, for a competent, gainfully employed adult whose structured settlements were not a result of personal injury, that is affecting his ability to work, you may not want to rely on your payments the way someone who is unable to return to work would but you have the right to make your own financial decisions.

b). Money management

Structured settlements have a form of built-in money management that can protect you from bad investments. This is because they are spread out payments paid out over a predetermined time with pre-agreed-upon amounts.

This helps you to plan and utilize it very well and also helps protect you from poor investments, spending money too quickly, and other common financial problems. If you receive a lump sum payout, without wanting to meet a need or having no plan on the ground, it can lead to unjustified, frivolous, and excessive spending —a structured settlement prevents this.

c). Safe from market inconsistencies

Unlike stocks, bonds, and mutual funds, your structured settlement funds do not fluctuate with market changes and are not affected by it either.

This means your payments are guaranteed by the insurance company that issued the annuity and will not deplete in a crashing market or increase in a flourishing one, thereby making it secure and easier to plan with.

d). Cost of living adjustments

A structured settlement is flexible enough to be set up with the cost of living fluctuation in mind. That is it can be designed to adjust to the yearly cost of living in order to more accurately meet your day-to-day needs.

Also, spreading out payments over time can reduce the temptation to make large, extravagant purchases and guarantees future income, especially for a recipient who has a medical condition that will require long-term care.

e). Safe from outsiders

The funds in the structured settlements are not accessible by the recipient’s creditors or ex-spouses, that is if the recipient goes through a divorce, making it safe from outsiders.

f). Minimal tax or Tax-free

Putting your settlement money into a structured settlement can also save you from paying a large tax on the funds all at once and most elements of a structured settlement are non-taxable though there are some exceptions to this, such as any money settled from purely emotional damage all physical personal injury settlement funds are non-taxable.

g). Interest possibility

There is a chance for some structured settlements to yield interest over time, more than a lump-sum payout would thereby make your settlement worth more as a structured settlement than as a lump sum upfront.

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.

These are increasingly popular among insurance companies, plaintiffs, and defendants.

A structured settlement can be very flexible in design in that payments can be designed to increase at specific points in time or can be indexed at a fixed interest rate. They can also include a series of lump-sum payments.

Note, selling structured settlement payments is easier than it sounds, it may take some time between 45-90 days for the process to come through, and do not forget to involve the guidance of a trusted experienced advisor in order to shield you from unscrupulous buyers.

FAQs on Selling structured settlement

Selling Sunset, a Netflix series details the work drama, and personal lives of the gorgeous real estate brokers working at The Oppenheim Group, a boutique real estate brokerage in Los Angeles.

Selling Sunset is not scripted and genuinely follows the real lives of the stars, but however, the drama is amped up a little for the show through clever editing.

Settlement locations are one of the most requested Fallout 4 topics.

So, there are 37 unlockable settlements total with 30 in the base game, one in Automatron, four in Far Harbor, one in Vault-Tec Workshop, and one in Nuka-World. Most are obtained by completing an objective or killing hostiles/residents in the area and then opening the workshop.

As with any legally required or awarded compensation for a wrongful injury or death, the structured settlement payments are free of tax. However, it can be arranged into two groups; non-taxable (physical, car accident injury, medical expenses, emotional distress, etc) and taxable (lost wages, punitive damages, interest, etc).

Also, if the recipient of the payments uses the money to create a gain, such as interest, investment growth, or capital gain, that portion is taxable.

Recommendations

References

Author

Achugamonu Uzoma

I am a finance lecturer at a reputable university. My experience both as a professional accountant, financial analyst, and researcher spans over 20 years. My current area of research includes financial intermediation, capital structure and investment, financial inclusion, and capital markets. I am a recipient of several awards, including the Grooming Research Grant award among several others. I have more than 35 high-impact journal publications and conference proceedings.