Structured Settlements – What Are They and Why Should You Sell Them Off?

Most people are only exposed to the term “structured settlement” by seeing late night TV ads that speak about getting immediate access to money. You must have seen ads saying ‘cash in your structured settlement and use your money right away’. If you’re someone who is or was a successful plaintiff in a particular lawsuit, it is pretty natural that your contact with structures would be more personal. You might have already received one, or you might be evaluating one or you might have opted for cash. But do you know everything about structured settlements? Like so many other things in the world, structured settlements are more about taxes.

Periodic payments vs. cash payments – Which one do you choose?

Suppose you’re injured in a car accident and you receive an amount of $30,000 settlement from either the insurer or the other driver, then this will be tax-free. But when you invest this $30,000, the earnings on your investment will be taxable. On the other hand, if you receive a structured settlement instead of cash, you will then get payments stretched over a period of time or may be throughout your life (as you may choose) and each of these payments will be fully tax-free. Therefore, you can well understand that a structured settlement will convert your after-tax earnings into a tax-free return.

Usually, the structured settlement brokers consult when a case approaches settlement. Brokers are usually paid standardized commissions by the company that issues the annuity or by the life insurance company. Brokers may choose to run many different financial projections based on the term of the years or payments over your life. You may even ask for no payments for about 15 years and then start off with bigger payments, as a strategy to fund your retirement.

When would you wish to sell off your structured settlement?

There are people who choose to sell off their structured settlements and there are different reasons behind this. However, they have to prove that they have dire need of money and only then will the judge approve selling off the structured settlement. Here are some reasons why people sell off their structured settlements.

Injuries and accidents: There are times when a person may fall sick and need money for treatment. It is then that the person might sell off his structured settlement. People who lose their jobs and end up suffering due to lack of cash, they are the ones who sell off their structured settlements, if they have any.

Pay off debt: As we know that people nowadays have too much debt but not too much money to repay them. There are parents who have to pay their kid’s student loan debt; there are credit card debtors who owe a huge amount on their credit cards. Such reasons may encourage a person to sell off his structured settlements and get cash.

Therefore, when you’re in dire need of cash and you have received your structured settlements, you may try selling them off. Keep in mind the above mentioned situations when it will be right to sell off your structured settlements.

Jimmy Simond is a founder of Personalfinancetricks.com, he share his immense knowledge of finance in this blog.