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.
Reminder
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.
Sources
- http://en.wikipedia.org/wiki/Structured_settlement
- http://www.expertlaw.com/library/personal_injury/structured_settlement.html
- http://www.structured-settlements-guide.com/2006/03/how_a_structure.html
Giveaway
Just to show you how great lump sum payments can be, I am co-hosting a $1,000 cash giveaway! Details on how to enter can be found by logging into the Rafflecopter widget below.
Good luck!
Reader Question?
What would you spend a lump sum on?
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Thanks Glen
Awesome giveaway, Glen, and very informative. When we were teenagers I had a friend who received a lump sum six-figure payment due to a settlement from an accident, and unfortunately he managed to squander away the majority of the balance within two years. *face palm*
Jennifer Lynn @ Broke-Ass Mommy recently posted..Being sickies gives me the perfect excuse to shop.
In some cases a lump some may not be the best idea…
It looks really easy when you explain it :). I had no idea it was illegal in some states, better be careful!
Pauline recently posted..$1000 giveaway! What are structured settlements?
I don’t know about easy, but it was a fun topic to research.
Thanks for co-hosting!!!
Holly@ClubThrifty recently posted..$1,000 Cash Giveaway!!!
It’s a great prize, I would be mad not to get involved!
Great explanation Glen! I’d totally take the money now and invest it.
John S @ Frugal Rules recently posted..December Blog Goals Update
Cheers John, I try my best 🙂
That’s the best write-up I’ve seen on the topic so far. Glad we can co-host on this giveaway!
DC @ Young Adult Money recently posted..$1000 Cash Giveaway – Structured Settlement Edition
Thanks for the kind words DC, I really enjoyed reading up on the topic.
My write-up for the giveaway was reviewing what I’d do if I received a lump sum, so it’s funny you ask! If I received a lump sum of money, I’d become debt free first and then take a vacation!
Jason @ WorkSaveLive recently posted..Recipe: Green Chile Enchiladas
Sounds like a great plan to me, I think I would do something similar.
Great and informative write-up Glen. This was so in depth. I am glad that I am co-hosting with you!
Debt Roundup recently posted..5 Pricing Tricks to Be Wary Of
Thanks Grayson, I’m glad you liked it.
Nice write-up Glen! Good pro and con review.
My Money Design recently posted..The 403b vs 401k – How Are They the Same? How Are They Different?
Thanks MMD 🙂
I’d definitely go with the lump sum so I could pay off the remaining bit of student loans then invest the remainder.
Great giveaway–how did all of you get involved in this? I’d love to be considered for future renditions!
The Happy Homeowner recently posted..January 2013 Goals
Oh, and thanks for the awesome advice about the plugin I asked you about on Twitter—love it! 🙂
The Happy Homeowner recently posted..January 2013 Goals
It’s pretty cool hey. You don’t spam your regular readers with ads and still get the ones who come via search.
I actually only go involved the day before it went live. Jeremy from Modest Money contacted me looking for more people to enter.
Wow that was great information. Did you know that already or did you research that all in a couple of days? Impressive.
Kim@Eyesonthedollar recently posted..Would You Take a Lump Sum for A Structured Settlement?-$1000 Giveaway
I researched that all in about an afternoon. I was a late entry as I only found out about it a day out from it going live.
Very interesting. This is a topic I don’t know much about. Given the information I now know from your post I’d take the lump sum.
KK @ Student Debt Survivor recently posted..Reflections on Turning 30
Me too KK, there is so much more I could do with it.
Hi Glen,
Great review I’ve seen, and thanks for co-hosting the big cash giveaway. 🙂
Bashir Ahmed recently posted..Galaxy Note 10.1 Gets Jelly Bean Upgrade
Glen: Great post with the pros and cons really laid out well. From a tax perspective, the new tax act has raised the highest marginal tax brackets, so taking a lump sum would result in higher and immediate taxes. A periodic payment would result in more income being taxed at a lower tax bracket. Second, selling annuities is generally a bad financial deal and requires a lot of effort and should be done with the assistance of tax and financial counsel. Finally, where minors or those who are disabled trusts should be and in many cases must be employed.
STEVEN J. FROMM, ATTORNEY, LL.M. (TAXATION) recently posted..2012 Year End Tax Planning Strategies
You know a lot more about it than me by the looks of it. Great advice and thanks for contributing!
I have a slightly different situation! I’m PRAYING you can at least give me some advice or your honest opinion! My husbands father passed when he was 2 and his mom sued the hospital. Fast forward to when he was 25. He received 5,000$ then when he was 30, around 15,000$. Well, he’s divorced with 2 kids,I have a 4yr old and we have a 1 yr old together. We of course have debit. Maybe around 50,000$ combined. And we both work at Ford. K that’s the back story. Well he has 4 more payments from the structured settlement equaling 375,000$!!! A light dawned on us that “HELLLLLO! If we lump sum it we can get out of debit, have a nice payment on a new house(we rent) and maybe open a business after a few years..etc. We called one of the big popular companies and they said “let’s get this started” and mailed us stuff that’s not here yet. They don’t seem to have good reviews online. We want to get as much of his money as we can, knowing a chunk will be taken out but, where in the heck would we start? How do we find a reliable company to help us? Lawyers or brokers? We are SO confused! These days you can’t trust ANYONE!! So with all your research you did is there any advice you could give for OUR situation? We think this lump sum option is perfect for us to build the life of comfort,debit free, happy children,”American Dream” we always dreamed of! Thanks Glen, or anyone else that would pllllllease even let us know how to get our feet wet with this!!
I’m sorry to hear about your husbands father passing away when he was so young.
I personally have never had to claim a structured settlement and so I have no advice on which companies would be best to go with. All I can suggest is that you do your research and speak to a qualified independent professional about your situation. They will be able to take into consideration exactly what your current needs and future goals are and they should be able to provide you with the appropriate advice.
Just make sure the person you talk to isn’t working for a structured debt company as they will have a vested interest one way or the other. You need to see an independent financial adviser who has your best interests in mind.
I am sorry I cannot be of more help, but unfortunately I am unable to provide you with any more information.
Glen, Sell Structured Settlement Payments is an away some idea. I never thought about it however it may be a nice idea for many people who have been come through such situation. My one friend recently received A Lump Sum payment. Your tips may be useful for him.
Shawn @ PipsToday recently posted..Will the Pound Continue to Weaken?
Great post! I would go with the lump sum settlement.Thanks for co-hosting an awesome cash giveaway! :0
Hi. I have recently been awarded around $18000 as compensation for a sexual assault committed against me when I was a child. The sex offender has agreed to the payment but can apparently only afford it in $100 per week instalments.
I am in dire straits at present. Minus lawyer fees of around $5500, I will be left with about $12000. My life literally depends on this money. Does anyone know of a business that will buy the payments for a lesser lump sum?
Please can somebody help me.
Thank you very much.
Sam
Glen, nice mentioning the issue of selling structured settlement payments. I came across your post while searching a topic in relation to this online. As the leader of a long year insurance company dealing also with the secondary “factoring” market of buying out structured settlements from plaintiffs, I can tell you that the 2 points you mentioned aren’t accurate.
First, selling a structured settlement is generally legal in most all states (this is not legal advice on my part, though). They do have the Structured Settlement Transfer Act to protect annuitants, but if it’s in the best interest of them and their dependents to sell their settlement payments, and they’ll get a fair and reasonable deal, it may be approved by the judge in court (it needs a court approval). There are limitations, and selling workers comp is another issue; I’m referring here to auto insurance settlements. Also, there may be more issues (anti assignment, etc., etc.), but generally speaking it is doable, and it is common.
The second issue you addressed about “repackaging” structured annuities – actually, when someone buys out structured settlement payment streams from an annuitant, the annuity itself is not transferred, only the payment rights. So, there’s no repackaging of the annuity on behalf of the annuity issuer. It’s only the rights to receive the payments (and in some cases to service payments for the original claimant) that is being transferred.
I hope it clarifies the points. Best Regards.
AnnuityCasher recently posted..Jul 3, When You Sell Structured Settlement Payments, Remember the Benefits of the Original Structured Settlement