What’s involved when you sell a structured settlement?

If you want to get cash cash for structured settlement, there are some important matters that you should be concerned with. The long term cost of selling your structured settlements for a lump sum payout are substantial. Most people don’t take these costs into consideration and only focus on the immediate impact of a large cash windfall.

If you do decide to use a structured settlement brokerage company, you’ll need to know a couple of things about the laws regarding this.

A structured settlement is defined as an arrangement for periodic payment of damages established by settlement or judgment in resolution of a tort claim. In most instances, these periodic payments are established and tailored to the living and medical needs of the victim and prevent the shift of responsibility for care to the taxpayer-financed social safety net.

Laws do protect consumers from brokerage companies that are unscrupulous. Very often, the settlement agreement also specifies a nonassignability clause. Basically, this is unenforceable, though.

Frequently, purchase agreements require that the consumer agrees to a host of provisions that severely restricts your rights and actually may not be very fair. Oftentimes, though, to avoid lawsuits or something similar, contacts also require that the consumer relieve the purchasing party of any responsibility, and agree not to sue them.

One of the largest brokers of structured settlements has said that more than 50% of structured settlements agreements have premiums that are less than $50,000. Less than 13% have settlements that are valued at greater than $250,000. Whatever the original concept of structured settlement was, and whatever the purpose of the tax rules that facilitate them, these figures clearly show that structured settlements today are not used principally for catastrophic injury resolution.

A handful of people argue that structured settlement provide crucial financial protection to seriously injured victims, including: protection against premature dissipation of benefits for injured victims; periodic payments tailored to the living and medical needs of the victim and his/her family; and avoiding the shift of responsibility for the victim’s care to the taxpayer-financed social safety net. They make the case that that there has been a dramatic growth in the number of factoring companies that are purchasing the future structured payments for a sharply discounted lump sum payment, “taking the structure out of structured settlements. This is a transaction that the injured victim enters into with a 3rd party, completely outside of the structured settlement and without knowledge of the other parties.

Because of this need, a secondary market has arisen whereby companies purchase a portion or all of the individual settlement for one lump sum payment. That lump sum is the result of the discounted present value of the payments the company is purchasing, using discounted rates that average currently between 16 and 18%. These discounted rates take into account the cost of capital, the company’s profit, and any inherent risk involved in undertaking the settlement.

All of the careful planning and long term financial security for the injured person and his/her family are unraveled by the company offering quick cash at a deep discount for future structured settlement payments. After almost giving away their only assured source of future financial support, many injured victims will face the prospect of public assistance to cover their future medical expenses and basic living expenses.

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