There are plenty of people like you who have heard about structured settlements only due to the amount of commercials being aired on TV. These commercials tell you to sell structured settlements to cash in immediately. What are structured settlements anyway?
Basically structured settlements are nothing but periodic payments as a result of a lawsuit verdict. The claimant is usually a person who was injured or became sick due to the defendant’s fault which can be negligence or an intentional act. Such payments are usually made on a monthly, quarterly basis. Some also prefer a semi-annual or annual mode. The defendant however does not pay the amount to the claimant directly. Instead, the money is paid to a life insurance company’s subsidiary that is known as its assignment company. The assignment company then buys the annuity from its parent company and pays the claimant on a periodical basis in the predetermined mode of monthly, quarterly, semi-annually or annual.
There are people who sell structured settlements to receive a lump sum payment. The option to sell structured settlements does not lie with the claimant. At times the claimant may be in dire financial conditions and need a large amount to bail him or her out. In these situations the lump sum payment is a big help. It may be noted that if a person were to sell structured settlement for upfront payment then he or she may be liable to pay certain taxes unlike the tax benefits or savings in periodical payments. You may be wondering who these people are to whom the victims or claimants sell structured settlements. The structures are bought at a discount by factoring companies. There are some states that may require a hearing before you are allowed to sell structured settlements.
On the other hand there are some who would rather not sell structured settlements and prefer regular payments. These safeguards against a person’s tendency to spend the whole money in one go and then regret later. There is a lot of flexibility in the way you decide to receive these settlement amounts. You can even ask for a predetermined amount upfront and let the remaining be paid to you as periodic payments. This is an alternative for people who want to sell structured settlement for a large amount of money. They can just ask for the amount that they may need immediately and let the defendant pay the rest monthly or in any other mode as the claimant prefers.
It is prudent to go through the settlement agreement and review the structure. If there is more than one claimant for the same lawsuit, you should check to see whether and how your agreement is different so that you are not at a loss, you should also check to see if there is a provision for adjustment against inflation etc.
It is very important to weigh the pros and cons while deciding to sell structured settlement. The claimant should analyze his or her needs before opting for selling. It must be noted that the buyers will profit when they buy your structured settlements; this means that there will be a reduction in the amount that you actually get. Hence it is advisable to sell only when the immediate needs are far greater than the loss you will incur. If you are unsure of what to do then the only wise thing to do is consult a lawyer before venturing out to sign any agreement with a buying company. The lawyer will explain clearly what your risks and losses are so that you can make the right decision. Generally people opt to sell structured settlement when there is an immediate financial emergency such as medical bills, payment for a new vehicle or building a house, etc.
There are tremendous benefits of structured settlements in addition to tax savings. These payments provide a financial stability as the periodic payments are assured. This assurance is much needed in times when the claimant is undergoing not only a financial crisis due to the accident but also may be a victim of emotional trauma. Thus the structured payments protect the victim financially so that he or she can utilize the time to get back to his or her feet in all aspects.
Structured payments provide a big advantage to the defendant too in case of a lawsuit. It lightens the burden of the defendant by not having to pay the claim in one go. Such settlements have become popular since the mid-1970s when the Internal Revenue Code allowed the defendants the facility to purchase annuities for funding their claim payments.