Are Structured Settlement Companies a Wise Choice
Initially, most individuals are thrilled when they are awarded a structured settlement. They rest easy in knowing that every month or year for a specific amount of time, they will receive financial compensation.
However, upon further consideration, getting small payments over a long period of time may simply not be adequate. This is compounded when the reason for being awarded the settlement in the first place (car accident, on-the-job injury, slip and fall injury, etc) prevents them from keeping their employment.
Oftentimes, these individuals would prefer to have a lump sum payment as opposed to the scheduled, long-term payments. This is where structured settlement companies come into play. These types of businesses are set up to purchase settlements from individuals in exchange for a one-time cash payout.
This does come at a price though. Those who sell their settlement will only get a percentage of the value of the total amount left to be paid. So, if a person has a settlement that pays out $10,000 a year for 5 years, the full value would be $50,000. Structured settlement companies may offer a lump sum payment of $25,000 to $30,000 in exchange for it. Generally, the longer the time left for the settlement payments, the smaller the one-time lump payment offered by these companies will be.
Laws vary from state to state, but it is standard practice that any type of transfer of ownership of a settlement award needs to be approved by a judge. This is done to protect those individuals from unscrupulous companies looking to take advantage of them. When people need money immediately, often is the case that their better judgement gets clouded.
The Pros of Using Structured Settlement Companies
Having passive money come in over years may sound great to some, but for those that have a desperate need for cash right now, it can be quite frustrating. This is especially true for those that are having a hard time finding suitable work, or those that need additional funds to cover medical bills or expensive, recovery treatment. The ability to exchange their settlement for instant cash may seem like a miracle.
The value of a dollar today won’t be the same value of a dollar 30 years from now. If inflation continues to behave as it has, the worth of a sum of money in the distant future will be far less than an equal amount currently. Some individuals would rather take their own chances by selling their settlement, and investing the lump payment themselves.
The Cons of Using Structured Settlement Companies:
The way that structured settlement companies make a profit is by buying settlements at a discount. In exchange for a quick, one-time payment, individuals will not get the full value of their settlement. The discounts can range from 25% to 50%, depending on the structured settlement company, length of remaining payments, and the state the individual resides in.
It is a common fact that a majority of lottery winners become bankrupt in less than five years. One reason for this is that many elect to receive a lump sum payment instead of having their winnings paid out over 25-30 years. Very few people are prepared to effectively handle getting large amounts of money.
This often results in overspending and taking too many risks, and ultimately leads to them losing every penny they have. Structured settlements are the same way. Getting payments spread out over time limits how much the owners of the structured settlements can spend.
This “forced discipline” prevents them from over-extending themselves. By trading in one of these ongoing settlements for a one-time payment, these individuals are faced with the same dangers of losing all their funds as lottery winners.
The reality is that there is no definitive answer in whether a person should sell their settlement. There are both positives and negatives to taking this action. Each individual case needs to be examined separately in order to determine whether or not working with structured settlement companies is ideal.