Understanding Structured Settlements

Hopefully everyone is having a great weekend. Today I have the pleasure of co-hosting a $1000 giveaway! You may well have already seen posts from some other cohosts relating to Structured Settlements or selling annuity; if not, make sure you enter here!

What is a Structured Settlement?

When we hear the term structured settlement or ‘periodic payment’, the first thing that comes to mind is probably injury court cases; perhaps a win that results in a payout from an insurance company. Essentially, instead of winning damages as a lump sum, a more recent and popular outcome is to be awarded a structured settlement; a sum of money which is awarded in installments. This has a number of advantages for all parties involved. For the company/person paying the damages, they are not required to outlay all of the money immediately – the immediate outlay of capital could bankrupt or seriously affect their future business potential. For the recipient; there is less chance of being financially irresponsible and blowing all the cash!

 

When Structured Settlements Don’t Work

Like anything else, one solution does not fit all. While regular payments sound sensible and perhaps a better all-round solution, sometimes people need the capital immediately:

Paying for College – Depending on the time of the settlement, it could be advantageous to have a lump sum of money to help pay for your children’s university. This may prevent them taking out expensive student loans, or perhaps enable them to go when they wouldn’t otherwise.

Getting out of Debt – If you are in some serious debt, perhaps it would make sense to use the compensation to clear these immediately. Not only would it relieve your stress and worries, but it would free up a lot of your monthly income. Consequently, the extra money would have the same effect as the monthly structured settlement payment.

Paying off Your House – Using a lump sum payment to obliterate your mortgage gives the same result as paying off debt – it frees up money each month to spend on other things. In effect, you are replacing the monthly structured payment with a reduced mortgage / living cost and getting some peace of mind thrown in for free!

 

The Alternative

If one of the above scenarios applies to you, perhaps it is worth trading annuity payments for a lump sum. There are several companies who are willing to purchase your structured settlement and in return pay you an immediate lump sum. Obviously there are fees involved, but these can often be offset by high-interest rates that you would no longer be subjected to!

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