Taking the Structure Out of Structured Settlements

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4011058362_7ac5d74fc1Structured settlements and annuities are similar financial products that an individual might receive for very different reasons. In both, monies will be disbursed monthly until the funds are gone. In the case of an annuity, the funds may be intended to last for the entire retirement of the individual, or some other duration. In the case of a structured settlement, the intention may be to simply make the money last.

Here is where the similarities end. Annuities start making payments after quite a bit of planning on the part of the individual or a thoughtful loved one. Annuities are usually meant to give the payee a comfortable, or at least secure, retirement. Structured settlements come into being following a case that is settled out of court. Usually the defendant, or the defendant’s lawyers, understand that their case is likely unwinnable. Rather than drag themselves through the time and expense of a doomed court case, they opt to take matters into their own hands. A specific dollar amount is offered to the plaintiff. Accepted, the funds will be awarded in either one lump sum or (usually) a punctuated payment system: the structured settlement.

Both situations are good for the individual. After all, who wouldn’t want steady payment that you don’t have to work for? But both models have their pitfalls, vulnerabilities that may not leave the receiver in a good position. In the case of annuities, sometimes life takes sharp turns during retirement. Medical expenses suddenly pile up, side income is lost, household repairs amass, family members become ill or go into debt. After such unfortunate events, it is possible that the small monthly payments received from an annuity may not be enough to make ends meet.

In the case of structured settlements, a plaintiff may be injured or unable to return to work for another reason, especially after suing another party. Perhaps the plaintiff is in financial straits following the expensive legal process. In many cases, lawyers push for structured settlements, instead of lump sum payments. It takes the burden of all-at-once payment off the offending party.

When people find that their annuities or structured settlements are insufficient to cover their life expenses, many times they go to sell. An annuity sold will grant the seller a one-time lump sum payment, which can be used to cover any of the expenses I mentioned above, plus many more. The same is true for the structured settlement awardee. Of course, in both cases there are restrictions on who may sell a structured settlement/annuity, and for what reason. Generally speaking, if the sale will benefit the seller more, financially speaking, than the structured settlement/annuity itself, then the state courts who preside over these matters will usually allow the sale.

There are many companies poised to buy these financial products. Because they don’t buy them for their actual worth, they are essentially buying money at a discount. But, the convenience that they offer is worth it to many people. If you are planning to sell your annuity or structured settlement, do so only after speaking with a financial professional and getting several quotes from companies who buy these products. You’ll be glad you did, as your lump sum payment will be the best possible option available to you.

Photo Credit: studebaker2008

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