Purchase Settlement Payment
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.
Purchase Structured SettlementWhy would a company want to purchase a structured settlement from a person receiving regular installments in compensation for a personal injury? The answer is clear: the company is guaranteed a steady, safe cash flow that is generally not taxable in return for a lump sum of money of about half the value of the full-term settlement. When companies buy a structured settlement they are always getting the better end of the deal, no matter how appealing the quick cash may seem to the seller. These companies are generally not out to make life better for injured persons, but instead are seeking to profit from those persons' pressing financial needs or eagerness to be free from what may seem to many like an allowance. This is why persons wishing to sell settlements need to be very, very careful about who they sell those settlements to.
First of all, exactly what are structured settlements and how do such arrangements work? When a person wins a lawsuit based on worker's compensation, personal injury, or medical malpractice, often the court will rule that compensation be paid in installments, either in small, regular amounts or a few lump sums over the years. Often, these payment plans will cease upon the death of the payee, whether or not there are dependents involved. Before accepting a compromise, injured persons need to work closely with lawyers to ensure that the settlement is going to benefit them to the fullest possible extent in order to prevent future financial distress and the loss of well-deserved compensation. This careful planning will prevent the undesirable necessity of finding a company to purchase a structured settlement from its possessor when he finds that waiting for a monthly check isn't a tolerable system.
If, however, a person has already settled a legal case and finds that the periodic payment plan is not working for him or decides that larger amounts of money are needed immediately in order to purchase medical equipment, a customized vehicle or home to accommodate injuries, or similar items, or does not expect to live long enough to benefit from long-term compensation, may want to consult various companies that offer to buy a structured settlement. Such companies will allow him to sign over annuities in exchange for immediately accessible cash. Persons considering this option should know that while their annuities are not subject to taxation, the lump sum received from a third party may very well be, causing them to lose even more well-deserved money. This is a decision that requires long, hard thought and should not be entered in to hastily or lightly, as its consequences can be disappointing at best and catastrophic at worst. If a person is confident in his investing and money-handling skills, he might be able to pull off the sale of his annuities aptly, but this is not always the case.
In general, this option is a very bad investment decision, as it is possible to lose up to half of one's settlement money in the process. Plus, persons on a periodic payment are often unable to work and need the regular installments to meet their daily needs; if these payments cease and the person is unable to support himself by working due to injuries, his financial need will be much greater than before a company agreed to purchase a structured settlement from him. A Biblical proverb sums up this situation very well: "The simple inherit folly, but the prudent are crowned with knowledge" (Proverbs 14:18). This is a financial decision that could end in folly, especially if rushed into without sufficient forethought and good legal advice.
If a person is absolutely sure that finding a company to buy a structured settlement from him is the most viable option, there are a few ways to ensure that the owner receives the very best deal. First, he should compare quotes at different settlement companies to see which is going to give him the highest payoff with the fewest risks; many online companies allow customers to get a free quote over the Internet. Next, he should be sure that the chosen company has a good reputation for paying its customers in-full and on time and that it is well-funded, licensed, and insured so that it doesn't go bankrupt and leave him with nothing. After selecting a trustworthy company, the person should consult a lawyer to ensure that proceedings are in his favor and that the sum received in return for annuities is reasonable and fair; he may choose to sell the entire settlement or only a part of it--the latter, of course, is the best choice. By following these steps, selling one's settlement may be a safe, prudent, and beneficial option for a person in financial distress.
It is important to know that selling one's annuities is not always a possibility. About one-third of states have laws that do not allow businesses to purchase a structured settlement, and some insurance companies are not willing to transfer annuities to another entity. In this case, a person will have to find another solution for their financial needs besides selling. Persons who are unsure whether their state of residence restricts such sales should consult a lawyer for advice. For the other two-thirds of the country, however, finding a company to buy a structured settlement is a feasible, if not advisable, option--a last resort for the financially stressed, sure to offer immediately accessible funds in a very short time frame.