If you have won a settlement as part of a personal injury lawsuit, you may find that it will be paid to you in installments rather than all at once; this is, of course, a structured settlement. The defendant will purchase an annuity, usually from an insurance company, which will make payments to you, usually on a monthly basis.
There are a few reasons why your settlement may be annuitized in this way. Of course, the defendant probably doesn’t have the full amount of your settlement on hand, so the annuity is the only way he can afford to pay it.
For the plaintiff, an annuity is designed to provide for his living and medical expenses for a period of time. This can be particularly important if the personal injury that gave rise to the lawsuit has left the plaintiff unable to work and earn a living. An annuity is also designed to protect the plaintiff from himself; that is, to keep him from spending down the entire settlement too quickly. If the annuity is to settle a lawsuit based on a personal injury, the annuity payments are tax-free.
Still, an annuitant may want or need to get a lump sum of cash up front. Some or all of the annuity payment stream can be sold to interested buyers in what is legally referred to as a structured settlement factoring transaction. If you are considering selling your annuity, you should make sure you have a compelling reason to do so, since you will receive much less in a lump sum than you would have received over the life of the annuity. The sale will have to be court approved, and the judge will want to know the reason you’re cashing out. Basically, it should be a financial emergency, repayment of debt, or some other pressing need that the sale of the annuity will resolve in full.
Selling your structured settlement in order to get a lump sum of cash to place in some other investment is likely not a good idea. Structured settlement buyers use what’s called a discount rate to determine how much they will pay you for your annuity. This discount rate can often be in the double digits, so unless you have an alternative investment that will beat that discount rate, you are better off staying with your original annuity. If you have found an investment that will beat that rate of return, it’s probably risky. Besides, there are often fees associated with the sale of your settlement, and that also eats into the amount you will receive.
If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.
