Advice For Selling Structured Settlements You Should Not Ignore

There are a variety of ways people come to receive structured settlement payments - personal injury claims, annuity arrangements, and so on.  Whatever your situation, if you are thinking about selling your structured settlement for a lump sum of cash, there are some important factors to consider.  First, you should make sure that it is even possible to sell your structured settlement; it is not always the case.  Even if it is possible, make sure you are aware of the costs and penalties involved.  Below are some important tips that should not be ignored.

First, if you have not settled your claim yet, consider if receiving a structured settlement is the right choice for you.  It cannot be stressed enough - now is the best time to decide between a structured settlement payment plan or a lump sum.  Anything that you do after the structured settlement is in place will invariably involve additional costs to you.  Keep in mind that combination arrangements can sometimes be reached - a smaller lump sum up front in combination with smaller structured annuity payments, for example.

If your structured settlement is already in place, keep in mind that it was probably set up from the beginning in a way that is tax-advantaged for you.  You may therefore have significant tax penalties if you decide to sell your payments for a lump sum.  Be sure to see a tax adviser to get the best advice for your case.

Sometimes, sellers of structured settlements run into federal or state limitations.  There are some federal regulations which limit the sale of structured settlements, and approximately 2/3 of states have similar legal restrictions.  Find out which laws, if any, apply in your situation.  At the very least, you may need to obtain court approval for the sale of your settlement payments.  In addition - if your structured settlement was issued by an insurance company, they may have language in the settlement agreement which limits sale of the periodic payments.
Don't be blinded by the prospect of getting a huge lump sum of cash up front.  Not only must you make sure you will not spend the money unwisely, you will need to check around and compare offers.  The discount value of a structured settlement can vary widely from buyer to buyer, but it generally ends up being 50% of the value of the periodic payment total.  Also - make sure you research each potential buyer carefully.  Check with the Better Business Bureau in your area, and ask for references.

Getting good legal help can be a wise investment when it comes to selling structured settlements.  A lawyer with experience in this area can help in several areas.  First, he or she can tell you if the buyer's offer is a good one, given the current market conditions and their experience with other clients in the same situation.  Second, he or she will be able to review the terms set forth by the purchaser of your settlement payments, and alert you if any red flags are raised.  Lastly, should the transaction go sour, a lawyer can protect your rights and make sure you are dealt with fairly by all parties involved.

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Lump Sump vs. Payments Over Time

At some point during your life you may have to decide whether to receive a one-time cash payment or monthly payments over a long period of time. It could be anything from a retirement account, an injury settlement, or maybe you will win the lottery. When this situation presents itself, do you know which option is best for you? Unfortunately, it is not as simple as adding up the total monthly payments to see if they are more than the lump sum payment. The combined payments should be significantly more than the single payment as interest is being earned on the money if it is not paid out in a lump sum. The best choice for you depends on several factors.

1. What interest will be earned on your money if you take a single payment and reinvest?

2. What interest are you earning on the money if you receive monthly payments?

3. Can you manage your money well or will you be tempted to spend it, if you have it all at once?

4. Is the money critical to everyday bills, college, retirement, or is it just extra income?

5. Are the monthly payments guaranteed in the event of your death?

The first two questions should be considered together. If you are able to earn more interest investing the money than you are earning by receiving monthly payments, then you should take a lump sum. Evaluate your investment options: Treasury bills and certificates of deposit (CDs) earn fixed income at a lower interest rate while bonds and stocks can give you a higher return with more risk of losing principal and interest.

Another very important factor is your money management abilities and spending habits. If you are not confident in your money management skills you will want to hire a financial planner or professional to help with your lump sum payment. The other option would be to take the payments over time. That way you can spend money as you receive it. Keep in mind, this doesn't mean to go out and rack up credit card bills because you know more payments are coming in. In fact, if you have a hard time managing your money, I would suggest keeping one credit card for emergencies and getting rid of the rest.

If the money is critical to everyday life, you may want to take the money now to help your situation. However, if a steady income is more valuable to you, then the payment stream may be a better option. On the other hand, if you plan on using the money for a time in the future, you are probably better off taking the one-time payment and reinvesting the money yourself. As a general rule, you can usually earn more interest by taking the money up front rather than over time.

Finally, you need to know how the payment stream is structured. What happens to the payments if you pass away? Do they continue to a beneficiary or do they stop? The payment guarantees vary greatly so make sure you know the specific terms of any payment stream before you accept one. I hopes this helps make your cash payment option decision an easier one.

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