Pros And Cons Of Selling Your Structured Settlement Future Payment
Pros And Cons Of Selling Your Structured Settlement Future Payment
While structured settlements are always meant for securing you're a stable income in long term, you do not need to limit yourself with the periodic payment. You can, instead of getting a periodic payment, sell your entire or part of your future structured settlement payments. In exchange of the future periodic annuity, you will get a big lump sum of instant cash when your settlement is sold.
There are both pros and cons in selling structured settlement. As the structured settlement buyers are in the business of money making, you should bargain for the best deal and maximize the money you can get from your annuity.
What's good in structured settlement selling?
As mentioned above, structured settlement meant for securing one's income in long term. In most cases, structured settlement recipients are those who lost part of their working ability and could not generate the same amount of income like they used to be.
The idea of structured settlement system is to balance back the losses on the income column of their financial balance sheet.
The structured system sounds perfect for those who are too lazy or incapable to make good financial plans, but it is actually a huge waste of opportunity cost.
Imagine if you have a big sum of money instead of periodic payment, investing the money wisely in mutual fund, blue chips stocks or real estate might have secure you a much better income than the original plan.
Imagine if you have a good business idea, selling the structured settlement gives you instant money modal. Say the real estate market crush and you see properties are on half-price sales; wouldn't it be better to have the money in lump sum?
If you are suffering high interest home mortgage, wouldn't it better to payback the loan and save for the interest?
Long story short, selling structured settlement gives positive impacts to your financial balance sheet as long as you are using the money at the right place.
What are the disadvantages then?
When it comes to bringing more greens into your pocket, Uncle Sam has his eyes (and hands) there. A structured settlement payment is not taxable and it does not affect your social benefits at all. However, if you sell your future settlement payment, every penny you earn with that lump sum of money is taxable.
Say you started your business after selling your annuity, the money earn from the business is taxable. So do the money you earn from share dividend, estate investment, or mutual fund.
Wrapping things up
Generally, considering the pros and cons listed above, a selling decision should be made based on the potential impact to your financial balance sheet. If selling your structured settlement tends to generate more income for you, then sell it; else, if you are selling the future payment in your structured settlement for some expensive luxurious (for example, a sport car) that lead to more expenses (the fuel and high maintenance fees), then perhaps you should think twice in using that money.
Overview On Structured Settlement Payment
Structured settlements refer to compensation payments via periodic allowance scheme. Usually, such annuity payments established to reimburse the settlement recipients losses of income or working ability in long term.
Such settlement system is first introduced in Canada in the 1970s. The idea was so brilliant and it quickly grabbed its position in United States and turned popular in Europe countries eventually.
Advantages with structured settlement
Structured settlement in general comes with a few advantages that conventional lump sum cash settlements do not give. A few major plus points include the elimination of dissipation risks involve with lump sum cash settlement and tax exemption on the settlement income.
Picture an 18 years old with a huge pile of money from lump sum settlement, the risks of overspend or being conned is very high. Now imagine the same person gets a fix smaller periodic amount from structured settlement, the risk of being targeted by con man is minimum. So is the chance of wasting the money recklessly.
In United States, favorable tax treatment rules have been extended to the cash received under annuity payment agreement in order to encourage the use of structured settlement system. For instant, money income from structured settlement payment are not included in gross income when filing tax, this means that the payment from structured settlement is non-taxable.
Making a structured settlement claims
The completion of a structured settlement requires contracted agreement from two major parties: the settlement insurer and the settlement claimant. The insurer can be an insurance company, a qualified settlement fund trustee, or even an individual defendant (in rare case).
In the beginning of a claiming process, the insurer have to promises to pay future periodic payments to the claimant with all or a portion of the negotiated personal injury damages in exchange for a release via a contractual agreement.
If the offer is agreed by the claimant, he or she will release the claim in exchange for the promise by the insurer via signing off the contractual agreement. The settlement can consists of one or more future benefit payments to claimant in addition to immediate cash items (for attorney fees, liens).
To finalized, the insurer will need to make an assignment of its obligation to pay future periodic payments to a third-party. The assignee assumes this obligation. The plaintiff agrees to the assignment in the release and agrees to look to the assignee as the obligor for the promised future periodic payments.
The assignee receives funds from the Defendant/Insurer or QSF Trustee and uses these funds to purchase an annuity contract in an amount sufficient to fund the periodic payment obligation it has assumed. The assignee owns the annuity contract and may either make payments directly to the Plaintiff/Claimant or may direct that the annuity issuer make the payments.
Alternatives for structured settlement
In case you received a structured settlement and wish to have the lump sum cash settlement instead, you can. Nowadays there are plenty of insurance companies or financial institutions that are willing to purchase a structured settlement. This means that structured settlement recipients can sell their settlement in exchange of a lump sum of instant cash.
