Most normal people don’t ever plan on being involved in an incident that may cause them to suffer harm or even permanent damage. Unfortunately many people do still get injured and they may even end up having to lodge a lawsuit against the person who caused them to get hurt. Regardless of the situation you find yourself in, if there is going to be a settlement payout involved, then it is likely the topic of structured settlement payments will come up one way or another.
What is a Structured Settlement Payment?
A Structured Settlement Payment is the amount of money that an insurance company or defendant in a legal case has to pay you. The payment monies will often be provided through a number of annuities that guarantee all future payments will be made. Payments will be made as installments over a fixed amount of time until the total amount of money owed to you is paid in full.
Now you might be thinking – “Why wouldn’t I just get a lump sum payment?”.
Well, if you are owed the money thanks to a successful lawsuit, then you may still have the option of having your settlement money in a lump sum payment. It all depends on how the settlement payment is proposed and if the defendant has purchased an annuity from an insurance company or not.
Lump Sum vs Annuity – What’s Better?
There are Advantages and Disadvantages of both Lump Sum payments and Structured Settlement Annuity Payments. I personally like the idea of getting a lump sum over an annuity payment, so lets look at the various Advantages of Lump Sum Payments and Structured Settlement Annuities.
A Lump Sum payment is where you receive all settlement money owed to you in a single payment.
A Structured Settlement Annuity is where you receive settlement money over a fixed period of time in installments.
Lump Sum Advantages
- You get the money straight away
- You can start spending your money immediately
- The immediate injection of cash can allow you to invest the money sooner and potentially get a better rate of return
- The settlement money may be used to pay off existing debts faster or even in its entirety. Perhaps it may be used to buy a house
- Any medical costs would be covered immediately
- Inflation will not eat away at your money (FYI – Some installment payments can be created to protect you from inflation)
Structured Settlement Advantages
- You have guaranteed money coming in for the life of the settlement period
- If you struggle to control your spending then structured settlement payments would prevent you from spending the entire amount at once
- There are many ways a structured settlement can aid in tax minimisation
- Minors or disabled persons may benefit from structured settlement annuities
Selling a Structured Settlement
So you won your court case but you got stuck with structured settlement annuity payments rather than a lump sum.
All is not lost! There are companies that are willing to buy your structured settlement and pay you a lump sum in return. Unfortunately there are a couple of caveats with selling your annuities such as:
- Where you live? – Many of the states in the U.S. have laws which can prohibit the sale of structured settlements.
- Does the insurance company allow structured settlements? – Some insurance companies will not repackage annuities to third parties.
If you are able to sell your annuities you should be aware that the company that buys them from you will likely make a profit from doing so. You will not receive the entire amount that you would normally receive if you were to continue with the longer term structured settlement, but you would have the cash now. So you will need to make a judgement call on what is more important to you.
If in doubt speak to your financial advisor.
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What would you spend a lump sum on?
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