Structured settlements are long-term, tax-free payments awarded to the claimant in a personal injury lawsuit. If the monthly payments from your settlement are insufficient for your financial needs, you may have the option to sell some or all of your future payments.
Below are the key details about selling structured settlements:
1. What Is a Structured Settlement?
A structured settlement is a series of tax-free payments awarded to a claimant to resolve a personal injury lawsuit. These payments are made over a set period and are designed to provide financial security to the injured party. The defendant may agree to a structured settlement voluntarily, or if the case goes to trial and the defendant loses, the court may order structured payments.
If the total amount awarded is relatively small, a lump sum may be paid. For larger awards, courts typically favor structured settlements to ensure long-term financial stability.
2. Why Sell a Structured Settlement?
You may decide to sell your structured settlement to meet urgent financial needs. Common reasons for selling include:
- Paying medical bills
- Making a down payment on a home
- Starting a business
- Purchasing a car
- Financing a college education
Before selling your settlement, carefully plan how much money you need and how you’ll use it. This ensures you make the best use of the funds you receive.
3. Settlement Sale Options
Structured settlements can be sold in various ways, depending on your financial goals. The primary options include:
- Full Sale: You sell your entire structured settlement annuity, receiving a large lump sum and no future payments.
- Partial Sale: You sell a specific number of future payments over a set period. Once this period ends, you resume receiving your regular payments.
- Percentage of Monthly Payments: You sell a portion of each monthly payment for a set period, allowing you to receive a lump sum while still getting partial payments.
Each option has fixed costs, and selling multiple portions of your settlement over time can increase your total costs.
4. The Process of Selling Settlements
The process of selling structured settlement payments typically takes up to three months. Here’s an outline of the steps involved:
- Receiving Quotes: Start by getting quotes from several factoring companies. These quotes are typically provided for free and detail how much the company will pay for your settlement. Be mindful of how fast and how much you can receive from each offer.
- Weigh Available Options: Carefully compare the terms of each offer and choose the one that best meets your financial needs. Select a company with a low discount rate and a strong reputation. Once satisfied, sign the necessary paperwork.
- Get Court Approval: The factoring company will arrange a court hearing to approve the sale. The judge ensures that the sale is in your best interest and that the terms are fair.
- Receive Your Money: After court approval, the buyer will notify your insurance company, and you will receive your lump sum payment within five business days.
5. Tax Implications
Structured settlement payments are intended to cover damages or injuries and provide financial stability. They are generally not considered income, so selling them typically does not trigger tax liability. However, it’s important to confirm this with a tax professional.
6. Understanding the Discount Rate
The discount rate is the percentage a buyer takes when giving you cash upfront for your future payments. A higher discount rate means you’ll get less money. Also, watch out for any extra fees that could lower the total amount you receive.
Concluding Remarks
Structured settlements offer long-term financial security. However, if you have urgent financial needs, selling some or all of your structured settlement can be a viable option. Make sure to carefully assess your options and understand the process before making a decision.