Structured Settlements Authority

Cash Payments or a Structured Annuity?

In a traditional personal injury settlement or lawsuit, compensation would consist of a single cash payment. This money is often spent unwisely leaving no funds available to provide for future needs. In the 1980's, new arrangements called structured settlements were created as an alternative. This new approach provides cash structured settlement payments to the injured person on a periodic basis. These annuity payments are guaranteed and can be paid over a period of months, years or a complete lifetime.

The Creation of Settlement Protection Acts

Under a nationwide policy to encouraging the use of structured settlements over cash payments in personal injury cases, Stage and Federal governments created special laws. The structured approach was favored as a means of providing annuity income. This reduced the risk of beneficiaries rapidly spending the capital proceeds from a cash settlement. In the past former beneficiaries have had to rely on direct public assistance as a source of support for the rest of their life. Others found themselves with no cash flow and had to rely on loans for family living expenses. To encourage their use, the offer of favorable tax treatment was extended to the cash received under a structured settlement agreement.

Although, both lump cash and structured settlement payments are not subjected to income tax, structures are becoming more popular. One reasons of note is that a structured agreement is a contract for "guaranteed payments" from the insurance company holding it. Many people like the support and security this offers year after year. In addition, the person receiving the annuity payments cannot easily get extra cash out of their structured settlement. This puts the beneficiary on a budget, which prevents them from spending the entire proceeds of the settlement on needless buying. The beneficiary receiving structured payments, unlike a cash settlement, does not have to worry about managing, financing, or investing a large sum of money.

However, there are specific drawbacks including a lack of flexibility. In a cash settlement you get fast access to all your money. Once established, a structured agreement is inflexible and does not provide that option. The recipient of settlement payments cannot ask the insurance company or broker holding the annuity to increase their benefits or have their structured settlement cashed in. In this situation some individuals have had to rely on credit and other resources to meet changing living expenses.

When a person chooses a structured agreement, they give up their right to a cash settlement in exchange for a series of payments over a period of time. The total of all the future structured payments is much larger than a cash settlement quoted today. To some people may appear to better deal. You must remember that money received in the future is worth less because of inflation rates and the time value of money. The proceeds from a cash settlement could be invested to purchase an asset or other options that can earn a return or interest. To properly evaluate the alternatives you must compare the present value of the structured settlement payments to cash.

If you agree to the structured payment process, you are giving up control and flexibility. If a sudden financial emergency occurs, the amount of your payments cannot be increased. Other times money is needed for life events like funding a college education, unplanned medical expenses, or for retirement. People in these situations find that to get cash for their structured annuity payments they must sell their rights to future annuity payments to brokers or investment corporations. To some this feels like a desperate situation where they are at the mercy of factoring companies. These firms are in business to make offers to pay cash for structured settlement payments. To protect individuals, the law governing this type of sale is very restrictive. A court order is required to sell a structured settlement to get the cash you need.

A settlement recipient can sell their rights to receive all or part of their structured annuity payments to a settlement buyer if the wish to gain access immediate to their money. The transaction sounds straightforward but can come at a high cost with hidden fees and expenses. The factoring company acquires the structured settlement for a cash payout, but the price offered may be substantially below its present value. If you are thinking about selling your settlement payments you may want to go online or call for several free quotes and to gather additional information from settlement firms you trust. You then can compare the costs, terms and services provided in each of the offers. This will almost guarantee you will receive a top dollar offer.

Remember that you are the customer and are in charge in this situation and should expect to receive great service. As a client you are free to ask real questions in total privacy about selling payments and your rights. Use your good judgment and experience but also ask your attorney for expert legal advice. You should also consult with a financial professional to discuss the impact on your taxes and even your estate before you accept any cash for your structured settlement payments.