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A structured settlement is a financial arrangement that provides periodic payments over time, often resulting from personal injury cases, medical malpractice claims, or other legal settlements. While structured settlements offer financial security through guaranteed future income, life circumstances can change, creating situations where accessing funds sooner becomes necessary.
If you find yourself in this scenario, it’s important to understand the various options available for “getting out” of a structured settlement, the legal considerations involved, and practical steps to take if you’re considering selling your settlement payments.*
Benefits of structured settlements
Before deciding to exit your structured settlement, it’s important to understand what you might be giving up:
- Tax advantages: Payments from structured settlements for personal physical injuries are typically tax-free.
- Financial security: Regular payments provide stable income over time.
- Protection from poor financial decisions: The payment schedule prevents rapid depletion of settlement funds.
- Customized payment schedules: Many settlements are designed to meet specific future needs.
Legal framework: the Structured Settlement Protection Act
Most states have adopted some version of the Structured Settlement Protection Act (SSPA), which provides legal protections for settlement recipients who want to sell their payments. These laws typically require:
- Disclosure of the financial terms of the transaction.
- A waiting period before the transaction can be completed.
- Court approval of the sale.
- A finding that the sale is in the “best interest” of the seller and their dependents.
Options for getting out of a structured settlement
Always consult with a legal expert before making any major financial decisions, but here are some of the more common methods of detaching yourself from your structured settlement.
1. Selling all future payments
You can sell your entire structured settlement to a factoring company for a lump sum. This option provides maximum immediate liquidity but eliminates all future payments.
2. Selling a portion of future payments
You can sell only some of your future payments, allowing you to get cash now while still retaining some future income. Options include:
- Selling a specific time period of payments: For example, selling the next 5 years of payments while retaining later payments.
- Selling a specific dollar amount from each payment: You continue receiving partial payments while selling the rest.
3. Taking a loan against your settlement
Some companies offer loans with your structured settlement as collateral. This approach:
- Doesn’t require court approval.
- Typically comes with high interest rates.
- Allows you to keep your payment schedule intact.
- Can create significant financial risk if you default.
Common reasons people sell structured settlements
People typically sell structured settlements for significant financial needs, such as:
- Medical emergencies: Covering unexpected healthcare costs not covered by insurance.
- Housing needs: Down payment on a home, preventing foreclosure, or making critical repairs.
- Education expenses: Funding higher education for yourself or family members.
- Debt elimination: Paying off high-interest debt that’s creating financial strain.
- Business opportunities: Investing in a business venture requiring capital.
- Family emergencies: Addressing critical family financial needs.
The process of selling a structured settlement
These are the basic steps involved:
1. Determine your financial needs
Before contacting any companies, clearly identify:
- How much money you need.
- Why you need it.
- Whether alternatives exist.
- Which portions of your settlement you’re willing to sell.
2. Research factoring companies
Numerous companies purchase structured settlements. Compare:
- Discount rates (typically 9-18%).
- Customer reviews and reputation.
- Better Business Bureau ratings.
- Years in business.
- Transparent fee disclosures
3. Request and compare quotes
Contact several companies to get written quotes. Each quote should clearly state:
- The number of payments being purchased.
- The total value of those payments.
- The discount rate being applied.
- The lump sum you’ll receive.
- All fees involved.
- 4. Select a company and complete their application
- Once you’ve chosen a company, you’ll need to:
- Sign their purchase agreement.
- Provide documentation about your structured settlement.
- Explain your reason for selling.
5. Court approval process
The factoring company will file a petition in your local court. This process typically includes:
- A required court hearing.
- Notification to interested parties (including the insurance company paying your settlement).
- Presenting your case to a judge.
- Demonstrating that the sale is in your best interest.
6. Receiving your funds
After court approval, the factoring company will process your payment, which typically takes 3-5 business days.
Financial implications of selling our settlement
It’s crucial that you are aware of what selling your settlement means for your finances moving forward:
1. Discount rates and their impact
When you sell your structured settlement, the buying company applies a discount rate to determine the lump sum offer. This rate typically ranges from 9% to 18%, depending on:
- Current interest rates.
- The time remaining on your settlement.
- The payment schedule.
- The company’s profit requirements.
For example, if you sell $100,000 in future payments with a 12% discount rate, you might receive around $65,000-$75,000 as a lump sum.
2. Tax considerations
While structured settlement payments for physical injuries are typically tax-free, selling these payments can create complex tax situations. Consult with a tax professional before proceeding, as the lump sum you receive might have different tax treatment than the original payments.
3. Long-term financial impact
Consider how selling your settlement affects your:
- Long-term financial security.
- Ability to cover future medical expenses.
- Estate planning.
- Eligibility for certain government benefits.
Alternatives to selling your structured settlement
Before proceeding with a sale, consider these alternatives:
- Negotiating with creditors: Many creditors will work with you on payment plans rather than demanding immediate payment.
- Personal loans: Traditional loans might offer better terms than selling your settlement.
- Family loans: Borrowing from family members, with clear repayment terms, might be less costly.
- Government assistance programs: Depending on your needs, government programs might provide temporary assistance.
- Bankruptcy protection: In extreme cases, bankruptcy might protect your settlement while addressing other debts.
Final thoughts
Getting out of a structured settlement is a significant financial decision with long-term implications. While it can provide needed funds for important life circumstances, it comes at a cost in terms of future financial security.
Before proceeding, thoroughly research your options, consult with financial and legal professionals, and make sure you understand all aspects of the transaction. By taking a methodical, informed approach, you can make the decision that best serves your current and future financial needs.
Remember that the legal framework requiring court approval exists to protect your interests. Use this process as an opportunity to carefully consider whether selling your structured settlement is truly the best option for your specific situation.
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Do you need upfront money for any of the following?
- Annuity
- Structured Settlement
- Inherited Annuity
- Assignable Annuity
If so, we will work with you one-on-one so you get the options that best fit your needs:
- One-on-one consultation.
- Customized solutions just for you.
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Call us at 866-416-5118 to talk about your financial needs and what annuity payments you have coming to you. We’ll do the hard work and handle the rest of the process!
*This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that you consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.*
