Most people receive a nasty surprise when they settle a lawsuit or an insurance claim. Instead of cash, they receive something called a structured settlement, which is actually an annuity, a legal agreement in which an insurance company agrees to make regular payments to a specific individual over a period of time.
That usually means a person receives a monthly payment instead of a lump sum of cash. The idea is to provide a person, such as an accident victim, with a regular source of income. The use of an annuity can also reduce a person’s tax liabilities.
The problem with structured settlements is their lack of flexibility. A structured settlement is not like a bank account; you cannot take out extra funds in an emergency, nor can you cash it out if you decide you don’t want to continue the agreement.
There are some other restrictions to structured settlements. In most cases, you cannot leave them to your heirs if you die. That means the source of income can die with the recipient. Nor are structured settlements truly tax free, because the IRS regards any money you receive in settlement payments as income. Structured settlement payments can increase your long-term income and affect your ability to receive government benefits by increasing reportable income.
How to Sell a Structured Settlement for Cash
Fortunately, there is an alternative. Many settlement agreements allow the recipient to sell the settlement for a sum of cash. You will have to check the settlement agreement to see if you have this option.
If you can sell your settlement, finding a buyer is easier than you might think. Companies like Einstein Structured Settlement can make you an offer for it online. When you contact a company like Einstein, you are under no obligation to sell the settlement. Instead, the company will offer you a cash price for the settlement.
Most experts agree that you should contact several different structured settlement buyers because different companies will offer different amounts for the settlement. Once you’ve gotten the quotes, you should sit down, compare them, and decide if it is worth your while to sell it.
A good way to do this is to add up the payments you will get from the settlement and compare it to the amount offered. If the cash amounts offered are far lower than the total of the settlement payments, it might be a good idea to keep the settlement.
If you decide that you want to keep the settlement agreement, but need some extra cash now, there is an alternative called a structured settlement loan. This is a loan in which future settlement payments are used as collateral. All or a portion of settlement payments are used to pay the loan payments and interest.
It should be noted here that many people will get a better deal on a loan if they sell the annuity for the cash, put the cash in the bank, and take out a bank loan. The bank loan (or line of credit) will usually have a lower interest rate and more flexible terms than the structured settlement loan.
Some other Reasons for Selling Structured Settlements
You should carefully consider the sale of a structured settlement because there are some limitations to these cash purchases. The biggest of these is that you will usually receive less cash than you would have if you kept the agreement in place. Generally, you will receive more cash if you simply take all the payments.
Although it should be noted that inflation will decrease the value of the settlement payments over time. Most structured settlements are not adjusted for inflation, so the payments stay the same even though the cost of living increases. That also means many structured settlement recipients would be better off selling the plan for cash and investing the cash in the stock market or an Individual Retirement Account (IRA).
If you’re planning to use your structured settlement as retirement income, you should definitely be aware of inflation. You may not get as much cash as you think because of it. Talk to a retirement planner because there are many retirement options, including tax deferred IRAs and Variable Annuities, that will pay a rate of return that beats inflation.
Another concern you need to be aware of is taxes. If you sell a settlement for cash, you will have to report that cash as income on your income tax return. That means you might have to pay income tax on that money or a higher tax rate because of it. The IRS might also reduce your income tax refund because of the structured settlement cash.
Selling a structured settlement can enable you to take control of your financial future. It can also give you the money you need to take advantage of business or investment opportunities, pay debts, or help your family. In many cases, a family can put itself in a better position by selling off a structured settlement.
One great way to do this is to use the cash from the settlement to pay off the mortgage on the family home. Another would be to purchase a rental property to use as an investment. Not only can rental properties generate additional income, but all expenses related to them are also tax deductible, so the family can reduce its tax bill.
A structured settlement isn’t always a good deal. In many cases, families and individuals will be better off with a lump sum of cash, even if they are facing financial problems. Structured settlements also make it hard for families to plan for the future.
Selling the settlement is a convenient and often sensible option that allows families and individuals to take control of their financial futures and make their own decisions. There is no need to live with a structured settlement that you no longer want when you can sell it for cash.