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The Case For Selling Your Structured Settlement

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Authored by David Dierking in Personal Finance
Published on 06-30-2009

If you’ve ever been in an accident or have been the victim of medical malpractice, you know firsthand that it can turn your life upside down. The financial pinch you might experience due to lost income or medical costs can be even worse.

Winning a court decision alone may not be the answer to your woes. Often times, the payment of such a decision could be held up by months of legal red tape. The court may also order that instead of receiving a lump sum payment for your settlement that instead you’ll receive a series of periodic ongoing payments. What happens if you’re counting on that settlement to help pay your medical bills and suddenly you can’t get access to it?

Enter the companies that purchase structured settlements.

When a firm purchases a structured settlement from an individual, they are paying a lump sum in exchange for the stream of smaller periodic payments. It benefits the individual who needs the lump sum right now and allows them to pay the medical bills that are piling up.

Why would a firm offer to purchase your structured settlement for a lump sum payment? The answer is really simple. They’re going to make money off of it. Firms that buy structured settlements typically offer about half the value of the settlement in order to take on the ongoing payment stream. Over the life of the settlement, they’re going to be taking in a lot more money than they’re paying out on the front end.

Also, there’s virtually no risk in it for the firm. The payment stream is backed by a court order and will remain a safe and steady source of ongoing income.

Now, having said all of that, it probably isn’t terribly difficult to figure out that the individual who decides to sell their structure settlement rarely comes out ahead. Investment firms that buy these settlements are usually in the power position of having the funds at hand readily available to offer. They also know that the individual in question is probably in a difficult position of needing to raise money quickly and is likely willing to make a bad deal in order to get it.

If you’re in the position of wanting to sell your structured settlement, what are some of the things you should know before you go ahead?

First, shop around. There is no shortage of companies out there willing to purchase your structured settlement. Sit down with at least three different companies offering these and get quotes. The offers you get from these companies can and will vary greatly so judge each on its total merits.

Second, be aware of the tax consequences of such a transaction. The money you receive from your structured settlement will likely not be taxable but the lump sum you trade it for may very well be. This would leave you coming out even further behind. Checking with a tax advisor first would be advisable.

Third, make sure that this is really the final option. Persons who enter into these agreements often give up large amounts of their settlements in order to get the cash up front.

Structured settlements are often a last resort for people looking to get their hands on cash fast but in selected instances they can work out for people. Understanding all the pros and cons associated with such a transaction will only help in deciding whether selling your structured settlement is really the best idea.

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