Cash For Your Structured Settlement

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Sometimes when a plaintiff settles a case for a large sum of money, the defendant, the plaintiff's attorney, or a financial planner consulted in association with the settlement, will propose paying the settlement in installments over time rather than in a single lump sum. When a settlement is paid in this manner it is called a "structured settlement".

There are some settlement purchasing companies who are interested in paying the individual a lump sum amount for receiving the rights to receive a structured settlement; the lump sum amount offered is a discounted amount. The individual who gets the lump sum amount can use this amount for buying a house or automobile or pay for schooling etc. Under normal circumstances the payment would be done on the fixed intervals agreed to between the two parties and the individual would not be able to purchase items such as house, car etc.

The recipient of a settlement may have his own reasons for considering cashing of the structured settlement. Some possible reasons are as follows.

1. He needs large amount of cash due to sudden financial problems
2. He might have found an investment opportunity which delivers a better long-term profit.
3. He may be planning to diversify his investment portfolio instead of depending on a single annuity

Another major advantage of selling the settlement is that future annuity payments will have reduced value because if inflation increases; a lump sum amount at present acts as a hedge against inflation

The purchaser of annuity has a profit motive in his mind plus he must consider the inflation effect in the value of the annuity. Considering these two aspects, he will be purchasing the annuity at a discounted rate and this rate will be equivalent to the bank rate at the minimum level. In fact, he may charge more taking his profit level into account. These are complex issues and a common man will find it difficult to understand the implications of various decisions. It is advisable to speak to an independent adviser who has the capability to analyze the pros and cons of selling the annuity before taking a final call on this. The adviser will take into account the individual's income stream, hard assets and debts and decide whether a lump sum payment now is better or worse than receiving annuity payments under the structured settlement.

There are various options one could consider for settlement with settlement purchasing companies. These are as follows:

1. Full Structured Settlement Payment as a lump sum payment at a discounted rate
2. Partial Settlement Payment as a lump sum payment
3. Shared Structured Payment

The individual may sell only a part of his annuity in lieu of getting a lump sum amount required for meeting his immediate needs; in this case he will be able to get regular annuity payments at a reduced rate. The decision for this must into consideration the individual's requirement, debt loads, educational costs, potential investment or business opportunities, etc. and a proper financial plan to be created.

In case the current debts of the individual are large and there is an immediate pressure to repay such debts one has to necessarily resort to a full payment option which will relieve him of the burden. The individual wanting to sell his equities must be careful while selling annuities that are structured to pay out long-term as the inflation and currency depreciation provisions ensure that they don't pay out as much overall as short-term annuities.

In case the current debts of the individual are small and there is immediate pressure to repay such debts one may resort to a partial payment arrangement which is a better option. Under these circumstances the individual can trade a certain number of payments to be exchanged for a lump sum paid to the individual up front. Alternately one can sell off a portion, or all, of a particular payment that is due for payment in the near future, but not soon enough to meet the individual's debt payment or expense needs. This can be explained with an example. Suppose you have to pay your child's tuition fees now and your annuity is likely to mature after another three months you could try for a partial payment.

The judgment on structured payment has been awarded through the court and hence any change on court's verdict requires court approval. Hence it is essential to get court approval in order to sell all or a portion of your structured settlement. Further, there could be state and federal restrictions on transfers of settlement. Before taking any final decision one should consider a number of potential annuity purchasing companies, keeping in mind the discount rates offered, the background and references of particular companies and the amount of cash needed and to be obtained, versus the amount of the annuity, if any, to be retained by the individual.

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