Selling Structured Settlement Payments
A structured settlement usually pays out money over a period of time in the form of an annuity, but it doesn’t pay out the cash in a single payment. Instead, payments are made over time as the amount of the settlement grows. However, most structured settlements also give a lump-sum, or immediate, payment option.
The present value of money invested in a lump sum is obviously lower than that of the same amount in a deferred annuity, but they have the same benefits and drawbacks. Deferred annuities are better for those with large sums to invest because the rate of return may be more than five times the interest rate of the lump sum. Also, the lump sum doesn’t need to be paid out to the beneficiary until a set time. In contrast, the payments made in a deferred annuity are tied to a person’s earnings and income, and they don’t grow as fast as the income of the person making them.
In a deferred annuity, the amount you receive over time is determined by how much you invest in the lump sum. If you invest money in something you can’t sell right away (such as a stock or bond), you could end up losing more money than the lump sum itself. And if you sell a stock or bond immediately, you may not have enough time to wait and get a larger lump sum.
When you sell structured settlement payments, your original settlement pays out the same amount of money to you every month over time, whether you make a lump sum or a monthly payment. You can always sell it and get a higher payment, or you can choose to continue the payment and save the money.
The value of your settlement changes each year due to inflation and the rising price of your home. It will usually be affected by changes in real estate values and the tax law, as well.
Before you sell structured settlement payments, make sure you understand all the terms and conditions. There are other options available, including selling the entire settlement or just parts of it, if you prefer.
To sell only part of your settlement, consider selling the payment you receive on your annuity. This gives you the option of using the lump-sum for whatever you want. But if you sell the whole payment, there may be no money left to buy your house or car.
To sell the entire payment, it would be best to take your payments and roll them into one larger lump sum. This gives you time to decide whether or not you want the lump sum or another fixed amount.
The easiest way to sell structured settlement payments is to sell the whole payment outright through a structured settlement broker. A structured settlement agent buys your settlement payments from you and sells them to a variety of financial institutions for a fee. You pay the broker only after the transaction is complete.