News and Tips on structured settlement transfers.

Posts Tagged: sell payments

19
Mar 11

Structured Settlement – Your Best Bet

You were injured and filed a lawsuit, or you won a lottery, or some other settlement, yet your benefits are being paid to you as a structured settlement. Why do you have to wait for your money? Why can’t you get it now?

Structured settlements actually got their start in Canada. They’ve become a favorite in personal injury lawsuits for a number of reasons. First, the plaintiff can pay a settlement to an insurance company that is less than the actual total lump sum settlement stipulated in court. How? Because the plaintiff puts a set amount of money aside with an insurance company, who then invests that money into a conservative investment whose rate of return generates the stream of payments that constitute your annuity. The time needed to grow that lump sum into your annuity is one reason why you have to “wait” for your money.

Another reason is your benefit. Structured settlements are intended to cover your living expenses for a period of months or years. Most people don’t have the discipline or investment skill to manage such a large amount of money on their own. So, the annuity lets someone else (the insurance company) manage the money, and the annuitant (that’s you) gets it – and spends it – only as needed. No matter what a “financial advisor” may tell you, you won’t beat the interest earnings on your investing without some special skill…or divine intervention.

Tax-free treatment is another big reason that structured settlements are so popular. As long as your damages come from your actual injuries, and not from compensatory or punitive damages, your annuity payments are tax-free. So, take that into consideration if you believe that your investment can overcome the return on your structured settlement. Anything you earn must beat both the insurance company and your tax rate.

If you truly don’t need this money, great – why not play with investing it elsewhere? But if you got it as a result of a personal injury settlement, and can’t replace that income elsewhere, selling should be your last resort.

Should you decide to sell, a site like www.quotemeaprice.com allows you to seek out bets from interested buyers quickly and easily. Buyers will tell you the amount they are willing to pay for all or part of your structured settlement. This allows you to get the best deal. True, you won’t get anything close to the amount you would have received over time, but if you are desperate for cash, you will be able to get more than if you called only one buyer.

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.

18
Mar 11

Structured Settlement – Cash It Out?

The late-night ads beckon, promising a big lump sum settlement if you cash out your structured settlement. You’ll get cash now, or so they promise. Consider a few things before you sell.

How Will You Spend the Money? You may think that you have a serious emergency on your hands that justifies selling your settlement, but do you really? If you’re paying bills, can they wait? Or can they be negotiated? If you’re paying for repairs, is there any other way to take care of it? If you’re giving the money to friends or family, can’t they get the money anywhere else? Sometimes, with enough hard thought, you’ll find that money “emergencies” really aren’t.

I Can Beat that Interest Rate. Your structured settlement is likely being managed and paid by an insurance company, who received a lump sum (perhaps from a defendant in a lawsuit) and is investing it in conservative investments so that you will receive guaranteed payments over several months or years. These investments are likely very conservative and not earning a high rate of return, and you may have had financial “consultants” tell you that you can do better. The truth is, however, that you probably can’t, at least not without taking on a huge amount of risk. Also consider that your structured settlement is tax-free. If you sell it, and invest the proceeds, any money you make won’t be tax-exempt.

How Long Are You Planning to Live? Structured settlements are typically intended to provide the annuitant (that’s you) with a stream of income to meet your living expenses for a period of months or years. If you sell your settlement, that income will be gone. How do you plan to take care of yourself, especially if you don’t have a spouse to do it for you, or if you can’t work.

How Disciplined Are You? Selling your structured settlement will result in a lump sum of cash at your disposal. This isn’t necessarily a good thing. Even the most disciplined person would have difficulty resisting the temptation to spend a large amount of cash right away. Even if you’re disciplined, there’s sure to be a family member or friend with some “urgent” need that can be met with a “loan.” If you don’t have control over the money – that is, if it’s still locked into an annuity – you don’t have to worry about saying “no” to a seemingly legitimate need.

16
Mar 11

What Happens to a Structured Settlement if I Die?

It’s not a pleasant thought, but if you have a structured settlement, you may have wondered what would become of those payments if you should head to the Great Beyond.

The short answer is, it depends on how your settlement was designed.

If your settlement is set up so that it pays only while you, the annuitant, is still alive, then there will be nothing for your beneficiaries if you should make an early exit. Not surprisingly, this would be the structure of choice for defendants in a personal injury lawsuit, because it ends their liability if the annuitant dies. However, as you might expect, plaintiffs usually want more flexibility than this.

Another option for a structured settlement is to have the payment stream be fixed over a certain period of time or a certain number of payments. This may be called a “guaranteed period” or “period certain” because, even if the annuitant should die, the payments continue until the specified period comes to an end. If the annuitant is no longer alive, the remaining payments go to his/her beneficiary, or his/her estate if no beneficiary has been specified.

Yet another possibility is to structure the settlement to pay a “joint and survivor benefit.” In this case, the payments go to the annuitant, but, in the event s/he dies, the remaining payments go to a specified “survivor.” This would usually be someone like a spouse or child. Like the guaranteed period, it ensures that the structured settlement will be paid in full, even if the annuitant does not live that long.

Finally, your structured settlement may contain a “commutation rider” which provides for a designated beneficiary to receive a discounted lump sum payment in lieu of the remaining payments if you should die. Typically, the commutation rider will call for the beneficiary(ies) to get 90% of the remaining settlement if the annuitant dies; this is more than the beneficiary would likely get if s/he sold the payment stream to a structured settlement buyer.

So, should you sell your structured settlement now in order to make more money for your beneficiaries? Well, hopefully you and your lawyer had a long conversation about your anticipated needs before you even agreed to the settlement. But, even so, selling it is a major decision. If you should die, remaining payments made to your beneficiaries are generally tax-free. It’s difficult to discipline yourself from spending the entire lump sum if you sell, and any interest you earn on the investment of the funds is taxable – not tax-free, like your structured settlement.

Hopefully, you will enjoy a nice long life with your structured settlement payments. But take a look at your settlement agreement so that you understand what will happen if you’re no longer around.

13
Mar 11

Structured Settlements and Kids

Unfortunately, bad things don’t just always happen to adults. When a child suffers a terrible injury and a lawsuit follows, the end result might be a structured settlement.

When the plaintiff in a personal injury lawsuit is a child, the court usually will put part of the settlement into a blocked bank account designed to pay current and future expenses. This bank account will remain restricted until the child reaches the age of majority (usually 18). Lawyers’ fees and other expenses will also be paid from the settlement. If Medicaid was used to pay some of the child’s medical expenses, they may also have a claim to part of the settlement (check with your lawyer about this). The remainder is placed into a structured settlement. Since a minor child cannot legally enter into a contract, the process of making the settlement binding is called confirmation, court approval, guardianship, or minor’s compromise proceeding.

Just like for adults, a structured settlement is typically a lump sum that is placed in an annuity that will invest the money then make a stream of payments to the annuitant (in this case, the child) over time. The idea of the structured settlement is to ensure that the child has a stream of income to meet his needs for months or years. This might be a lifetime if the child is permanently and totally disabled. Parents and attorneys for the child should review any proposed structured settlement carefully to determine if the amount of the settlement will be sufficient for the child.

But what if circumstances change and you need cash sooner than the annuity will provide it? It is possible to sell a child’s structured settlement, but it’s more difficult than selling one that an adult controls.

Structured settlements for minor children will often have a no-sale provision designed to prohibit its sale in a factoring transaction. Even with a no-sale provision, however, a court can approve a structured settlement sale if it can be demonstrated that there is a great an immediate need for the cash, and that the child’s needs are better met by selling the settlement than waiting for the next payment. You can expect, however, that the court will scrutinize a claim like this very carefully.

Once your child reaches adulthood and gains control of his settlement and that restricted bank account, the temptation to spend it all now will be immense, and it’s tough to expect an 18-year-old to have the maturity to know that he’ll need the money later. At this point, the best gift you can give your child is solid financial advice, maybe even the services of a financial planner, to help protect him when you aren’t around.

23
Jan 11

Who Wants Your Annuity?

Someone who has a structured settlement and is considering a sale of it may wonder who would want to buy. And why?

The purchase of structured settlements as an investment opportunity is getting more play in the media. It’s new (not really)! It’s different (well, OK)! It gives a great return (correct)! The allure is understandable: for an up-front infusion of cash, an investor can take over an existing stream of payments. Because structured settlement buyers use a discount rate to figure how much they’ll pay, they can control their profits – and rate of return. With discount rates often in the double digits, the return on a structured settlement can easily beat any stock or bond available in today’s markets.

The current recessionary economy has also created a boon for settlement buyers. With the economic downturn, structured settlement annuitants are highly motivated to sell. They need cash to pay medical bills, to survive unemployment, or to hold off foreclosure. The more desperate the seller, the more likely they’ll accept a highly discounted settlement, and take the deal fast.

Another reason investors love structured settlements: security. Most annuities are created when a lawsuit defendant takes a lump sum to an insurance company and purchases it. The insurance company is able to invest that cash and earn enough interest to make the payment stream to the plaintiff. These investments are locked in, and usually protected. As a result, the payment stream is relatively secure. As long as the insurer stays in business, the payment stream is a certainty. The only thing the buyer has to do is sit and wait.

But getting into this business can be tough. Of course, you’ll need access to cash in order to make those initial purchases. You’ll also need a reserve of cash to meet operating expenses while you’re waiting for those first settlement payments to come in. You’ll need help navigating the regulatory environment surrounding the sales of structured settlements. All states have a strict process and timeline for sales, and all of them include a “cooling off” period in which the seller could change his mind. You might invest a lot of time and resources into a purchase, only to have the seller back out at the last minute.

Finally, there are a number of very big players in the market who do a high volume of structured settlement buys. In order to get noticed in a bidding environment like QMAP, you’ll have to make your bid stand out – this may mean taking a lower profit.

21
Jan 11

Why a FA is an Annuitant’s Best Friend

So, you’re thinking about selling that structured settlement. Hoping to get a big cash payout. Got big plans for that money. So, what next?

Your state may require you to consult with an attorney and/or financial advisor (FA) before you finalize the sale of your settlement. Even if it doesn’t, finding some good advice is a great idea, even if it costs you a few bucks.

What am I really getting? A good financial advisor can look at the details of the deals being offered to your by competing buyers (if you haven’t shopped your annuity to more than one buyer, do it now – QMAP offers a free and easy way to get competing bids) to give you a good idea which one is best for you.

Should I Sell at All? A financial advisor will ask you about the reasons why you’re looking to sell your settlement. A good FA will try to find alternatives to selling. Remember that an annuity is designed to ensure you can cover your expenses for a fixed period of time, so you should be sure you’ve exhausted all other possibilities before you sell. A good FA might find something that you haven’t yet considered.

Dirty Tricks. When you seek out a financial advisor for help, find one who’s had recent experience in selling structured settlements. Chances are, he’s seen what buyers try to do to bump up their profits: change the deal midstream; introduce new “processing,” “legal,” “administrative” fees; or something similar. The buyer’s costs should be met as part of the deal, so if you’re asked to pay in additional fees, consider this a red flag.

Details of the Deal. A financial advisor can look at what’s being offered to you, and figure out how you’ll really come out in the end. The discount rate is what buyers use to scale back the total amount of your annuity and figure out what they’re willing to pay. A good FA can figure competing discount rates. The lowest discount rate – although it means the best lump sum payment for your annuity – can be a sign of trouble if the prospective buyer tends to float a favorable offer, only to pull it back later.

Who Are You? Still, don’t just trust anyone who hangs a “Financial Advisor” shingle outside his door. All those letters after his name should mean something, and a few quick Internet searches will tell you what. Ask him specifically about his experience with structured settlements, and find out how recently he’s handled one.

19
Jan 11

Structured Settlement Concepts – Annuities

If you’re the owner of a structured settlement, you may hear the term annuity a lot in connection with your settlement. What does it mean, anyway?

An annuity is defined as a financial product sold by financial institutions that is designed to accept funds and then pay out a stream of payments to the individual at a later point in time. Annuities have lots of uses, but in the case of a structured settlement, they allow a defendant in a lawsuit to set aside an amount of cash less than the court-ordered amount. The amount that goes into the annuity is invested, allowing the amount to grow until it is sufficient to make payments to the plaintiff over the course of several months or years.

So why would a settlement be arranged like this? Why doesn’t the defendant just pay you what he owes? Most likely, the defendant doesn’t have that kind of cash on hand to pay the total lawsuit award, so the structured settlement allows him to satisfy your claim with the cash he has. Typically the defendant will purchase the annuity through an insurance company. The defendant pays in enough to be invested and make the future payments, and he’s done.

But there’s another purpose to the structured settlement annuity, and it’s meant to protect you. If you’ve been injured in an accident, you may be disabled and unable to work. The structured settlement ensures that you will have a steady stream of cash to pay your living expenses for a fixed amount of time. It prevents you from spending everything right away, and because the payments come in intervals, there’s no chance the money will burn a hole in your pocket. The structured settlement protects you from you.

However, you may be facing unforeseen circumstances, such as medical or legal expenses, or tuition, and need access to the full amount of your settlement now. So, you may sell all or part of the structured settlement payment stream for a lump sum of cash. Just remember:

You will get less in a lump sum than you would have received over time. The buyer of your settlement will use a discount rate to reduce the amount of your total settlement to today’s dollars.
Structured settlement buyers are companies looking to make an investment and turn a profit. They are not in business to help you, so make sure that selling is your best and only option.
The sale of a structured settlement will take some 45-60 days, or even longer depending on your state. If you need money sooner than that, selling your settlement won’t help.
Selling is forever. Once the payment stream is sold, you will never have access to it again. If living without your annuity is an unpleasant thought, don’t sell.

24
Dec 10

The Downside of Annuities (part 2)

This is the second post in a series discussing the pitfalls of annuities, specifically variable annuities. Regulators and the media have given increased attention to these products in recent years, as more cases have surfaced showing they have been sold to people who were unaware of the terms and risks involved.

Risk. A fixed annuity pays a fixed, and stated, rate of return throughout the annuity term, and so is likely invested in very safe, low-return investments. A variable annuity, by contrast, is usually invested in mutual funds or other products that have a higher return but are definitely riskier. While there is certainly a place for higher-return investments as part of an overall financial planning strategy, this could be disastrous if a substantial portion of your retirement savings – money you can’t afford to lose – is parked there. Take a hard look at the underlying investments for any annuity. A sales rep will emphasize attractive returns, but don’t stop there. Find out where, exactly, your money will be invested. Will it be invested in mutual funds based on untested industries or uncertain emerging markets? Will it be invested in high-risk, high-return “junk” bonds?

Death Benefit. Variable annuities often feature a death benefit that guarantees your heirs will receive the full value of the annuity in the event of your death, even if the annuity has lost value. This may sound like a good deal, but it isn’t free. Usually, there is a charge, perhaps one or two percent per year, for this benefit. That doesn’t sound like much, but calculate what this percentage means in real dollars, and then compare this amount to going rates for life insurance. You might be able to buy a life insurance policy outright for the same amount or less, providing exactly the same benefit to your heirs.

Hefty Fees. Variable annuities have notoriously high fees. Why? Because everyone involved needs to make their money. The mutual funds underlying your investment have fees, and those fees have to be passed on to you. The insurance companies want to cover their costs – particularly the commissions they pay on the sale of variable annuities – and so they pass on fees to you, as well. Unless you’re earning above-average returns that cover all of these fees, you would almost assuredly be better off investing your money outright and managing it yourself.

Other than keeping a large sum of money that you could spend too quickly out of your hands, most of what a variable annuity offers could be done on your own. Consider any variable annuity with a skeptical eye.

23
Dec 10

The Downside of Annuities (Part 1)

While an annuity can be a useful part of a retirement plan, the term “Variable Annuity” has become a dirty word in regulatory circles in recent years. There have been thousands of cases of people, particularly seniors, being talked into variable annuities that were completely inappropriate for them.

In 2009, a class action lawsuit against nationally-known insurance company Allianz alleged that some 340,000 people were sold risky variable annuities, and were misled by slick sales reps about the underlying terms and penalties of these annuities. They earn fat commissions on the sales of these products, so the incentive to sell – and the pressure they put on you to buy – is huge. Here are some things to watch out for if you’re being pitched this kind of product.

Surrender Penalty. The insurance companies who sell annuities don’t make any money if you’re able to pull the funds out whenever you want. So they tack on a “surrender penalty,” a percentage that the company deducts from your account if you close your account sooner than they would like. Read the fine print – you may have to wait three, five, seven years or more before you can take your money out without giving up a big percentage of it to do so. That means, if you’re unsatisfied with the annuity company, or if you have a financial emergency and need cash, you lose out big time. And depending on your age and life expectancy, what are the odds that you will outlive that surrender period?

In the Allianz case, the annuitants alleged they were promised an “upfront” bonus for purchasing the annuity that would offset the surrender penalty. The annuitants claimed, however, that Allianz was not on the hook for this bonus for fifteen years, and for some annuitants, the bonus never materialized.

Taxes. Annuity salesmen emphasize that these products grow tax-deferred, and that’s true. While your money is locked up in the annuity, you pay no taxes at all. Once you begin taking withdrawals, you pay taxes on the earnings portion of your annuity. But these earnings are taxed as income at your income tax rate. By contrast, were you to put your money in a mutual fund on your own, the earnings would be taxed each year as capital gains at just 15%. If you’re in a tax bracket higher than that, having your money in an annuity has actually cost you more in taxes.

The next post will address further red flags of variable annuities.

22
Dec 10

Annuities – The Basics

An annuity is, simply, a promise to make a series of regular payments over a period of time. The annuity contract spells out the terms of this promise.

There are various types of annuities, but this discussion centers on those used for retirement or income planning. An annuity can be a great way for someone to guarantee an income for himself and prevent himself from blowing his savings too early.

An immediate annuity is created when someone uses a lump sum of cash, such as accumulated retirement savings, to purchase an annuity. The annuity will consist of payments usually made over the life expectancy of the retiree. A deferred annuity occurs when someone makes periodic payments into an annuity; when all of the payments are made, the annuity begins making periodic payments to the annuitant.

Annuities can be fixed, that is, they pay a fixed interest rate over the life of the payments. This is a very safe and conservative option, but deprives the annuitant (that’s the person receiving the payments) the opportunity to reinvest the annuity funds into an investment with a higher rate of return.

A variable annuity does not provide that guaranteed rate of return, but also allows the annuitant more control over the investments underlying the annuity – and therefore a greater chance at earning more money. Generally the annuitant (and probably his investment advisor) will choose an allocation of investments designed to generate the desired return. The annuity may also call for reallocation at periodic intervals, where the annuitant can change the underlying makeup of his investment portfolio. One downside of this more active management of the annuity funds is the fees involved with buying, selling, or reallocation of the investments.

The structure of your annuity depends on the initial investment, interest rate, underlying investments, your life expectancy, and the beneficiary arrangements on your annuity. Obviously, the longer your life expectancy, the smaller the regular payments must be. If your annuity provides for distributions to your heirs in the event of your premature death, this changes your payments too.

Also important is the financial health of the company who issues your annuity, often an insurance or investment company. If this company becomes defunct, your annuity could be at risk, so you should research and be satisfied with the issuing company’s financial stability prior to buying in.

While an annuity can be an excellent retirement planning tool, there are plenty of investing and tax issues you should consider before deciding if one is right for you. significant risks and tax issues associated with them. Shop around, and talk to a competent financial and tax planning professional before you choose an annuity.

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News and Tips on structured settlement transfers.

Posts Tagged: sell payments

Let Companies Compete to Buy your Structured Settlement!

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