What is a Structured Settlement?
A structured settlement is a method of payment used to settle a court case, ensuring that the plaintiff will receive periodic, tax-free payments from the defendant.
What is a Structured Settlement Annuity?
The annuity in a structured settlement case is the method used to pay the plaintiff’s periodic payments. The annuity is purchased from an insurance company, and is paid in periodic installments to the plaintiff.
The Structured Settlement is Born
Structured settlements have not always been used to pay damages to plaintiffs. Initially, large lump sums of cash were used to settle accounts. Many plaintiffs, however, used that lump sum in a relatively short period of time without maximizing the settlement’s value for their own future financial well-being.
To help with these rapid spending trends, the federal government passed the Periodic Payment Settlement Act in the early 1980s. Using structured settlements as the means to spread the payments over time, the law’s focus was on helping those plaintiffs who were receiving large sums to more effectively manage that income over a longer period of time—ideally providing financial stability for themselves and their families.
Additionally, the tax code was altered so that these payments were tax free at the local, state and federal level.
Today, structured settlements are used extensively to provide a tax-free avenue for people to receive large sums over an extended period of time.
Helpful Things to Know Before You Get Your Settlement
- Make sure that all parties involved in setting up the settlement (lawyers, financial planners, insurance companies and/or annuity company) are not affiliated.
- Be aware of fees included in getting your annuity.
- Lawyers can receive compensation for using a particular company versus another.
- Settlement commissions and fees can severely impact the principal amount.
- Beneficiaries should ensure that they understand the benefits of lump-sum awards versus annuities.
- There are different settlement options depending on your life expectancy. If you look to sell your structured settlement down the road, the one you choose will impact how they are bought.
- Some companies will not allow you to change beneficiaries once the settlement is signed.
- You can divide the settlement annuity among numerous insurance companies for some protection in case one company declares bankruptcy.
What is the Periodic Payments Settlement Act of 1982?
In 1982, Congress passed the Periodic Payments Settlement Act. The law added tax-free incentives to the use of structured settlements that ensured claimants were given long-term financial security through the use of periodic payments.
Types of Structured Settlements
You, your beneficiary or estate will get paid until the original structured settlement terms are met, regardless of whether the original annuitant is deceased.
Once the annuitant on the agreement passes away, the payments stop. Life-Contingent Payments can still be sold, but the process is a little different.
Contact SenecaOne to see how we can help you with your Life-Contingent payment sale.
What are the steps to selling a structured settlement?
You Make the Decision to Sell
After weighing your options and doing your homework, you are ready to sell some or all of your structured settlement to a company that you have researched. Have your paperwork ready.
Your SenecaOne Specialist will review your structured settlement agreement for free.
You Choose a Company
You aren’t obligated to do business with any one company. There are many companies to choose from. So do your homework. And definitely shop around. It is your money, so you should have it in your best interests to get as much of it as possible.
You Make a Phone Call
The company representative will listen to your needs and help to determine what you have to sell to get what you need. You will receive an estimate. If you aren’t happy with it, keep working at it until you are.
You are Sent Paperwork
Once you are ok with the terms and the offer, you will receive documents that you will sign and return to the buying company.
A Petition is Sent to the Court
Once everything has been agreed upon, the buying company will file a petition for the sale with the local court where the sale is to be made.
The Court Date
It is not as scary as it sounds. The judge will ask questions, but they are to make sure that your best interests are being considered in the sale of your structured settlement.
What the judge looks at:
- The structured settlement company’s reputation
- The discount rate being used
- The need that is being addressed by the sale
The Sale is Approved
If your judge is convinced that everything is in order, he or she will sign the court order and the sale is approved.
You Get Your Lump Sum
Once the documentation is finalized, you will be sent your lump sum. Most companies will offer options as to how you will receive the money.
How Much Do I Have to Sell?
That is entirely up to you. You can sell one payment or all of them, depending on your need. Most companies are extremely flexible in accommodating what you would like to sell. It is your money. But it is also your future. Know what selling your structured settlement means to that future.
Ready to talk to someone about selling your structured settlement?
Things That Influence Your Lump Sum Payment
A range of factors affect what you will receive from a structured settlement purchaser:
- How many payments you are looking to sell
- The amount of your annuity
- When those payments you are selling are due
- What the market rate is currently
- The time value of money
- Inflation rates (both actual and the discount rate)
- Discount rate
What is the discount rate? It is similar to the interest charged on a variable rate loan. The percentage charged is affected by how far out that payment is. If you are selling more than one payment, the rate you will be quoted is usually the average rate for all the payments.
Learn more about the discount rate.
Finding the Right Company
When deciding to sell payments, there are several things you can do to ensure you choose the right company.
- Check the BBB ratings of your company
- Make sure the representative actually listens to your needs
- Don’t allow anyone to push you to sell more than you are looking for
- Look at online reviews, make sure they are mostly positive
- Ask if the company has filed for bankruptcy in the past
- Make sure your company has a good reputation (it could be a factor in a judge’s decision)
- Learn the time required to complete a structured settlement sale. There are a few factors that determine how long the sale of your structured settlement, like the jurisdiction of the sale, how long it takes the court system to set a date, but it takes on average between 62 to 90 days for your structured settlement sale to be approved and fund.
- Should your needs be more pressing, will the company provide you with cash advances? SenecaOne offers cash advances to cover situations while you wait for that lump sum to arrive.
Contact a SenecaOne representative at 800-513-1394 to learn how Your Trusted Source can help you access the industry’s best cash advance programs.
Selling My Structured Settlement: Is it the Right Decision?
Life can come at you pretty fast. Medical emergencies, economic downturns, unexpected additions to the family. Whether it’s a once-in-a-lifetime opportunity or just real life happening, sometimes you need more help than your structured settlement annuity payment can provide.
It is your money, but it is also your future. Don’t take the decision to sell your structured settlement annuity lightly. Make sure you know how selling your structured settlement payments will affect your ability to pay your financial obligations in the future. Some experts recommend writing a letter to yourself so that you remember the circumstances that led you to sell your structured settlement.
Some things to consider before you sell your structured settlement annuity:
- The process of selling your structured settlement can take up to 3 months.
- The time that it takes to finalize the sale depends on which state you live in.
- You might have to appear before a judge before you are given a lump sum.
- If you do, the judge will want you to have a valid reason for selling your structured settlements.
- Research the time value of money, inflation and the discount rate and understand how they affect your lump sum payment.
- Be informed as to the discount rates.
- Have a list of questions ready. And keep a pencil and paper handy to write down questions as they come up. Because they will.
- Make sure you understand the process and what you can expect to get for selling your future payments.
- Your credit rating has no effect on how your lump sum is calculated or whether you can sell your payments or not.