Settlement buyers will offer a lower amount than the lump sum settlement would have been, but the seller gets access to faster cash than the scheduled payments. While it would have been ideal in many cases to opt for the lump sum settlement in the first place, sometimes sudden large expenses come up that could not have been foreseen.
When a plaintiff is awarded an out-of-court settlement, there are two ways that the defendant can pay it: as a lump sum or a structured settlement, which is basically an installment plan that can be arranged in a number of ways. It's possible to set up the structure so that a large portion is paid up front, followed by a schedule of smaller payments. A uniform set of small payments can be made on a yearly schedule, or a set of large payments can be scheduled to occur every few years. Insurance companies often establish structured settlements by purchasing annuities that make sure regular payments are disbursed to the claimant.
One of the main reasons plaintiffs will consider structured insurance settlements is that they're tax-free, though there may be federal restrictions on this tax break of the structure is purchased by a third party. Another reason is that the recipients may know that they lack the fiscal self-discipline to leave a lump sum alone. By having a settlement award distributed over recurring payments, recipients can't overextend themselves beyond each payment period.
However, there are disadvantages to structured settlements that may require selling them. If the claimant suddenly wants to make a large purchase, and they're locked into receiving smaller payments, there's no way to go back to a lump sum settlement; so he or she needs to sell the structured settlement.
Wednesday, December 29, 2010
Basic Tips to Purchase Structured Settlements
The purchase of structured settlements requires a lot of thought between the both parties involved. The purchaser does not want to enter into this transaction if the company paying the structured settlement is not sound or profitable. The seller does not want to venture into a frivolous sale which cannot benefit in the long term and compensate for the loss of the structured payments. These are just some of the concerns that need to be addressed when discussions are taking place to purchase structured settlements.
Structured settlements arise from the settlement of lawsuits. It is usually where companies settle a case out of court and a lump sum is paid to the defendant as a result of defective medication or products, injury, accident, malpractice in the medical profession to name a few. These settlements can work out to be a large sum and in most cases the monies are paid via a fixed sum on a timely basis. The basis can be monthly, semi-annual or yearly or whatever is decided upon by the two parties involved. Another reason for these structured settlements is because in many cases, the individual or parties involved are unable to work or maintain the expected standard of income that would have been enjoyed prior. These amounts when paid over a period of time will equate to the affected individual receiving more money, since interest accumulates on the unpaid portion at any given time.
There are companies that purchase settlements from individuals. This benefits the settlement owner if a lump sum of money is what is needed at that point in time. It may be required for a meaningful purchase such as real estate and education; however it is always important to weigh very carefully the benefits derived from the lump sum payment and the long term installments received on a timely basis.
In order to purchase or invest in these settlements, the transaction has to be profitable or lucrative to the purchaser. There is usually a fee to be charged, which will be calculated as a percentage of the settlement. The long term investment and therefore the long term interest to be derived from the purchase is another benefit derived. In many cases, dependent on the state in which the settlement resides, approval by the court is required to purchase structured settlements. This is to determine that any purchase of structured settlements is done in good faith and that the settlement holder is not taken advantage of in any way by the purchaser. It also serves to ensure that the settlement holder is in fact making a correct decision and not selling blindly without thinking of the future.
When attempts are made to purchase these settlements the settlement holder can agree to sell part of the structured settlement. In this way the holder not only benefits from receiving a lump sum from the sale, but continues to receive some of the pre-determined payments on a timely basis.
Structured settlements arise from the settlement of lawsuits. It is usually where companies settle a case out of court and a lump sum is paid to the defendant as a result of defective medication or products, injury, accident, malpractice in the medical profession to name a few. These settlements can work out to be a large sum and in most cases the monies are paid via a fixed sum on a timely basis. The basis can be monthly, semi-annual or yearly or whatever is decided upon by the two parties involved. Another reason for these structured settlements is because in many cases, the individual or parties involved are unable to work or maintain the expected standard of income that would have been enjoyed prior. These amounts when paid over a period of time will equate to the affected individual receiving more money, since interest accumulates on the unpaid portion at any given time.
There are companies that purchase settlements from individuals. This benefits the settlement owner if a lump sum of money is what is needed at that point in time. It may be required for a meaningful purchase such as real estate and education; however it is always important to weigh very carefully the benefits derived from the lump sum payment and the long term installments received on a timely basis.
In order to purchase or invest in these settlements, the transaction has to be profitable or lucrative to the purchaser. There is usually a fee to be charged, which will be calculated as a percentage of the settlement. The long term investment and therefore the long term interest to be derived from the purchase is another benefit derived. In many cases, dependent on the state in which the settlement resides, approval by the court is required to purchase structured settlements. This is to determine that any purchase of structured settlements is done in good faith and that the settlement holder is not taken advantage of in any way by the purchaser. It also serves to ensure that the settlement holder is in fact making a correct decision and not selling blindly without thinking of the future.
When attempts are made to purchase these settlements the settlement holder can agree to sell part of the structured settlement. In this way the holder not only benefits from receiving a lump sum from the sale, but continues to receive some of the pre-determined payments on a timely basis.
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