Structured settlements help several injured persons and their families by providing consistent, guaranteed income for them which helps them earn regular incomes while they are recuperating from their injuries. These payments are issued in structured agreements and at periodic intervals between two to five years. They also shield those persons who otherwise could not function normally during recovery from injuries and depend on the monthly, fixed income for regular support. However, the present value of a structured settlement payment is determined by the courts through an appraisal process.
There are two parties in a case: the injured person and the insurance company, who have granted the settlements. The person who suffers can sell future structured settlement payments so that he or she gets a lump sum which ranges between a large amount and very little depending on the individual conditions. The individual who receives payments can make use of them for any purpose like medical expenses, repaying debts and pursuing higher education. A lump sum payment made to a beneficiary will be taxable; however the total amount may not exceed the fair market value.
Individuals who receive payments can sell structured settlements either to pay regular installments which are usually small amounts or to get a huge lump sum. In some cases, payments are given to the claimant’s beneficiaries in the future; the court decides the type of distribution. The individual who sells structured settlements also benefits because he gets a ready supply of money when the need arises. He does not have to wait for the installment amount from the insurance company which is a very time consuming process.
When individuals sell structured settlement payments, there are two methods under which they can do so: they can do it themselves or they can hire a factoring company. A factoring company is an organization that purchases the payments that are left by a consumer and then pays the company for it. The factoring company charges an upfront fee for its services. This is one of the reasons why consumers often get into a financial bind; the factoring company charges a very high rate of interest.
A consumer interested in selling his structured settlement payments should check the rates offered by the factoring companies before he enters into a deal with them. Many of the companies that purchase settlement payments also offer low interest rates. A consumer can also work on buying his payments from an insurance company. The insurance companies buy them in order to get a percentage of the whole amount. The percentage that the insurance company gets from the settlement will be lower than the rate that the factoring companies charge.
A consumer should also keep in mind that the amount he gets from selling his payments is reduced in most cases by the discount rate. The discount rate is the percentage obtained from the present value of money. A consumer can buy his payments from any company and sell Structured Settlement payments at a higher sum, by getting additional discounts on his premiums.