Structured Settlements - Should You Sell Yours?

In recent years, it has become more common for victims of accidental injury who accept a settlement from the at-fault party to accept a structured settlement instead of a lump-sum payment. With a structured settlement, the injured party receives payments over an agreed-upon length of time - five years, ten years, or even a lifetime, rather than receiving payment up front in a lump sum.

There are advantages to this for both parties. The injured party may require constant medical care, and the regular payments of a structured settlement guarantee that income will be available to cover the medical expenses. For the paying party, the settlement can be paid by purchasing an annuity, which allows an upfront payment to accrue interest, thereby producing a larger long-term yield from a minimal investment. In many cases, a structured settlement is viewed as a win-win situation for both parties.

There are restrictions on structured settlements that may not suit everyone. Once you agree to accept a structured settlement, you cannot trade it back in for a lump sum payment, nor may you use it for collateral for a loan. What if you want to buy a home and pay cash? What if some other unexpected expense comes up and you simply do not have the cash available? Under certain circumstances, you may be able to sell your structured settlement to a third party.

There are companies that are interested in purchasing structured settlements for investment purposes. Perhaps one or more of these companies has already contacted you. They will agree to pay you a lump sum, in cash, in exchange for you signing over your future annuity payments to them. Be aware that any party that offers to buy your annuity is interested in doing so for investment purposes. They wish to make money on the transaction, and for them, that profit will be spread over the long time that it takes to receive all of the payments that constitute the settlement. Once you combine the factors of time, interest, inflation, and the buying party's profit, you will find that the offer made to you will seem quite small. The amount you receive will be an amount equal to the present day value of the settlement, minus whatever sum the investors require for their profit on the transaction.

You should also know that some states prohibit the sale of structured settlements, that some insurance companies who handle the annuities prohibit sales to a third party, and that you will probably need to go to court to arrange the sale. In addition, there may be tax considerations involved in the sale, and the taxes due on large sums of money are not insignificant. If you are interested in selling your structured settlement, you will definitely want to discuss the sale with an attorney and a tax advisor beforehand.

While structured settlements are designed to benefit those who receive them, there are times when it may be desirable or necessary to sell them. If you are considering selling your settlement, make sure that you weigh all of your options carefully. Once you agree to sell, you cannot get it back.