Sell Structured Insurance Settlement
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To buy or sell structured insurance settlement annuities requires the supervision of the courts. This is a legal process designed to protect the annuity recipients from being victimized by greedy scammers. People who receive these types of annuities have often been severely injured. The injuries may cause either a permanent disability or a temporary disability that will require a lengthy recovery period. In some cases, the settlement is the result of a wrongful death case or on behalf of a minor or incapacitated adult. Negotiated structured settlements benefit both the injured party, the plaintiff, and the party that may be held responsible for the injury, the defendant. When the case is negotiated, the plaintiff is assured of receiving a specific amount of money paid in periodic installments. This income can pay for future medical expenses and basic living expenses. The defendant has some control over the expense and is released from future liability to the plaintiff. Typically, the defendant purchases an annuity from an insurance company who then sets up the periodic payments according to the negotiated agreement. The person receiving the payments, often referred to as the annuitant, may need a lump sum of cash for a specific financial reason. The annuitant may decide to sell structured insurance settlement payments to a third party in exchange for the lump sum.
In 1982, Congress passed the Periodic Payment Settlement Act to regulate the legal process of negotiating these types of agreements. To encourage defendants to settle with plaintiffs, Congress included a provision that the revenue is considered tax-free income. But the legislation also requires a court review should the annuitant wish to sell structured insurance settlement future payments. As previously stated, this review helps protects annuitants from scams, but may also protect them from spending the revenue on frivolous expenditures. Actually, the annuity itself cannot be sold because it belongs to the insurance company and not the annuitant. But because of legal restrictions, the insurance company cannot change the payment structure. However, the future payments are considered an asset that belongs to the annuitant. These can be sold to third party buyers as long as the federal and state regulations govern the process. The courts ensure that the sellers are protected in the process. The psalmist advised: "Be wise now therefore, O ye kings: be instructed, ye judges of the earth. Serve the LORD with fear, and rejoice with trembling" (Psalm 2:10-11).
As an example, let's say that Joe was permanently injured at his place of employment five years ago. Under a negotiated agreement, he received a workers compensation settlement that provides a specific amount of money that is paid to him four times a year (quarterly). As Joe's health has deteriorated, costly modifications need to be made to the family home. Joe may choose to sell structured insurance settlement future payments for a lump sum of cash that can be used to pay for these modifications. Joe's wife researches several different third party buyers to find a reputable company that specializes in the purchase of annuities similar to the one that Joe has. The couple talks to an experienced individual at the company who helps them through the legal process of making the sale. This employee advises the couple that they don't, and shouldn't, sell the entire annuity. Annuitants are able to sell only the number of future payments needed to meet the financial goal. The employee assists the couple in determining exactly how much money is needed to make the modifications so that the company can calculate the number of future payments that will need to be sold. Joe can use this information to sell structured insurance settlement future payments to the third party company.
Because of an accounting concept known as the time value of money, and the need for the third party buyer to make a profit, this calculation is more complicated than dividing the amount of money needed for the house modifications by the amount of money Joe receives every quarter. The time value of money concept means that, primarily because of inflation, a future dollar is worth less than a current dollar. Even with an annuity that is structured so that each periodic payment is exactly the same amount of money, the payment received today has more value than a payment that will be received in five years. Annuitants need to understand the ramifications of this concept before they sell structured insurance settlement future payments to third party buyers. Again, these companies also need to make a profit to stay in business and to continue offering this service to annuity recipients. Returning to the example, Joe may have expenses relating to the sale. As part of the court review process, Joe may be required to hire an attorney to oversee the transaction.
The process to sell structured insurance settlement annuities to third party buyers often takes six to eight weeks. Though it's in both the buyer's and seller's interests to expedite the transaction, the court review takes time. Some third party buyers may provide the cash to sellers before the transaction is approved, but this cash will almost always be a type of loan. Except in extreme circumstances, the seller should probably wait for the court's approval before accepting cash from the buyer. Of course, the buyer doesn't give the seller actual cash. The money is often given to the seller in the form of a cashier's check or a wire transfer. Let's say that Joe received a cashier's check to fund the modifications to the family home in exchange for five future payments. This means that Joe's next six payments, for the next six quarters, will go to the third party buyer. The loss of this future income, for the next eighteen months, is something that Joe needs to consider before beginning the process. To sell structured insurance settlement future payments for a lump sum may be very tempting to annuitants, but should only be done for a very good reason.
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