Purchase Settlement Payment
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A Purchase Settlement Payment can provide a lump sum of cash from lottery, annuity, or personal injury structured settlements. Structured payments are meant to be paid out over years, decades, even an entire lifetime. In many cases, the guarantee of a structured settlement offers financial security that the person would not otherwise have. The payments are a great financial stabilizing force for the everyday budget. Even though these payments do provide a routine income stream, sometimes the payments cannot adequately meet medical costs or unexpected financial obligations. Hence, there are people who would like the opportunity to sell their structured settlement. A purchase settlement payment may allow them to use those assets in a way that they can recover from a recent financial downturn (one that may have been the cause that resulted in the award in the first place). Or perhaps the person wants to make even more money through investing it or make a large purchase that they would not have otherwise been able to make. In essence, the individual would really like to be able to sell the rights to a guaranteed income in exchange for cash now.
Structured settlements were originally developed as an alternative to lump sum cash payments in legal settlements. A structured settlement company is one that takes long term incremental income and turns it into a purchaseable asset which is paid to the seller in a lump sum. State and Federal laws allow a purchase settlement payment to be made in lieu of monthly increments. Although the sum of money involved in a transaction of this type is quite large, it is risk free because the process is done through the courts and thereby garners court protection. Even if your insurance policy contains language that appears to prohibit assignments, there should be no problem in converting your settlement to a lump sum. The proceeds from the sale are usually tax free. Additionally, Federal tax laws protect the tax free status of a structured settlement in the event of sale. The main concern in making a decision of this type is to get the most or largest lump sum available. "Ye have heard that it hath been said , Thou shalt love thy neighbour, and hate thine enemy. But I say unto you, Love your enemies, bless them that curse you, do good to them that hate you, and pray for them which despitefully use you, and persecute you; That ye may be the children of your Father which is in heaven: for he maketh his sun to rise on the evil and on the good, and sendeth rain on the just and on the unjust." (Matthew 5:43-45)
There is a distinct financial service that specializes in the practice area of figuring out the current value of a long term payments. It is called cash flow factoring. Cash flow factoring is a method used by financiers to convert structured settlement payments into a purchase settlement payment. There is also something called the national average discount rate. This rate is used when funding settlements and annuity payments. Depending on the type of settlement, the discount rate could range between 8%-20%. The way it works is that there is a present value assigned to the future payments. The present value is based on the following: the discount rate, the type of payment stream, whether the intervals are monthly or annual, how many payments are left, and whether or not there will be increases in the future. If the settlement is life contingent, there is a higher discount rate. Essentially, what is happening is that the person is borrowing from cash flows they expect to receive in the future.
If this is a strategy of interest, be sure to seek out information about the purchase settlement payment from many different companies before deciding on one. Find a company with experience in the purchase settlement payment market. Even if the firm has not actually done many transaction of this type, as long as they have worked in related fields like buying and selling annuities for wealthy clients, that counts as experience in this arena. The goal will be to find a company that is willing to offer the lowest discount rate. With a lower discount rate, you will receive more money upfront. Once a company has been selected, the company will require copies of the contract and additional paperwork used to set up the initial agreement. The documents will provide information that is essential in to evaluating every aspect of the agreement in order to proceed with the conversion.
Deciding on whether to get a purchase settlement payment instead of sticking with a long term payment plan is up to the individual. If a person does opt for the large payment, it is essential that they have a very clear plan about using the money. A plan will minimize the amount of risk a person takes by always comparing the money spent to the goal to be achieved. If the money was awarded for a specific purpose like medical care, be sure to take care of those arrangements before deciding to spend the money on other things. Also, it is extremely important to note that the amount of money you receive in a lump sum will not be the amount of the original award amount. The lump sum could be less than 50% of the original award amount. Remember that the longer the term that is left on the payments, the higher the present value. And the lower the discount rate, the more the purchase settlement payment. Lastly, always check with a tax professional before making a sale because tax laws change all the time.
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