A structured settlement can be an insurance or financial agreement that you will receive as a claimant in the case of personal injury, instead of getting a lump sum payment. Settlements typically come up from some legal claims and give you a particular amount of money for a definite period of time.
The problem takes place when you find yourself faced with emergency situations and you need money to cover such expenses. Even though structured settlements can furnish comfort for a specific period of time, the payment schedule may result to predicaments if you require liquidity to completely take care of your current financial obligations.
Because of the continuous increase of the number of structured settlement investment assigned yearly, a secondary market has progressed that permits owners of these settlements to manage them as their financial needs call for. You can sell structured insurance settlements, which is a potentially beneficial option if you are going through short term financial difficulties, but should only be regarded as last resorts.
Structured Settlement Types
Insurance structured settlements are typically a method of compensation reimbursed to a plaintiff who has been granted a huge monetary amount from an insurance claim. To place funds to such obligation, the party accountable for recompensing the claim in general makes use of one of these two methods:
- Buy-and-hold Method – The party buys an annuity from a life insurance provider.
- Assigned Method – The settlement obligation is handed over to a third party, which is return buys an annuity.
The installment payouts are highly-structured concurrences that pay occasionally. These periodic payments differ in form.
- Annual Payments – The payouts are divided into equivalent amounts and allocated during the agreed-upon period.
- Inflation hedging – The payouts made during inflation hedging can vary over time, depending on deflation or inflation in the economy.
- Monthly Indexed Installments – The payouts may be altered in amount because of some financial indexes that are followed over time.
- Differed Payments – The payouts are rewarded in uneven amounts over a fixed period of time to cover anticipated expenditures over the contract period.
- Measures for the Recipient’s Future Care – The payouts cover such things as housing or periodic medical expense that may change from period to period.
Annuity Payment Benefits and Drawbacks
While you can opt to sell your annuity, you should understand that the greatest advantage of keeping annuity payments is their tax benefits. Keep in mind that most structured settlements are non-taxable, or may considerably lessen a beneficiary’s taxes when matched against a lump-sum distribution. In reality, even those taxable structured settlements can grant tax benefits. The taxes on income can be deferred during the period in which the imbursement is made, in contrast to paying the lump-sum tax the moment when the reward is made.
When the arrangements of payouts in a structured settlement are established, they can’t be modified. Depending on the officially permitted structured of the settlement, the recipient may or may not utilize a structured settlement as an investment option or collateral for loan. This is specifically true if the payouts are not taxable, because federal law inhibits the nuisance and impediment of these tax-free benefits.
Are You the Best Candidate?
Structured settlements are efficient strategy for solving the financial concerns of many beneficiaries of large money claims including insurance. You will not need the help of a structured settlement purchaser if you don’t plan to invest your proceeds or you have insufficient competency for doing so.
For the most part, structured settlement loans are not necessary if:
- You are prematurely or momentarily disabled.
- You have limited financial knowledge or expertise.
- You are a minor and can’t manage your own financial affairs.
- You need savings for education, housing, and other huge future financial obligations.
- You have been hurt or you currently deal with ongoing medical expenditures.
The Settlement Market
If you plan to sell structured insurance settlements, you’ll be glad to know that there are many structured settlement services that are more than willing to help you. However, the cost of fund redistribution can be expensive.
You should also note that there are some insurance companies that will not allow transfer or assignment of structured settlements to third parties to put off and discourage the sale of these annuities. On the other hand, some institutions will permit the partial sale of the future payouts. Most structured settlements are arranged in this manner, in which the recipients can only sell the minimum portion of payments essential to cover the most immediate financial situations.