Making The Right Choices When Thinking To Sell Structured Settlement Payments
If you're thinking to sell a structured settlement, you should know up front that it's not a decision to take lightly.
Created as annuity payments through insurance companies, the settlement annuity is often provided as a form of compensation for product liability or personal injury.
If you sell today, it will not be worth the full value compared to if you continued collecting the scheduled payments you would have received. This is called the discount rate, and depending on several factors it can range anywhere from approximately 8 to 22% on average.
Why such a large range? Many reasons, but some of the main ones include who is the insurance company that's the provider of the settlement, the duration in which it might take to collect the full amount, as well as market conditions and current demand for secondary market annuities.
But before you start thinking of all the things you might buy with your newfound wealth, it's important to understand that cashing out a structured settlement is not for extravagances and unnecessary purchases. In fact, it's required to present the reason for wanting to sell settlement payments to a judge in order to validate it is in the best interest of the recipient or policy holder that doing so is the right decision.
Not to worry, this doesn't mean that you'll need to stand before a judge to plead your case. Well, that's not entirely true. You do need to be present in court, but the factoring company presenting your request handles making the request. In most circumstances, you probably won't need to say a word.
But back to the matter at hand - when discussing the factoring transaction (purchasing of your structured settlement payments) it needs to be for the right reasons. A new entertainment system is not one of them.
Common acceptable reasons are often related to taking care of debt or bills, and also include home repairs, even buying a new home, starting a business, or car repairs, and purchasing a new vehicle for getting to work. This can also include paying your child's tuition fees and other considerations that might be deemed more of a life necessity than luxury purchases.
Often a structured settlement is created as an income stream for individuals that are not likely able to return to work and provide their own income due to personal injury. But over time, the situation can change for some and they've returned to their job. This makes the scheduled payments less of a necessity to survival and while it continues to be an asset, many find alternative uses of the money might be more suited to their current needs.
In most cases, selling payments for a buyout also provide a better financial solution than taking out a loan. Whether you're trying to consolidate debt or finance a home, business venture or similar, you won't be left owing or subject to credit checks.
But when looking to sell structured settlement payments for a lump sum, it's important to consider how it fits with your financial needs, as well as your long-term goals. And to understand that the discount rate of your payments will be less than what you might receive if you continued collecting the payments.
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