A structured settlement is a negotiated, tax-free lawsuit settlement disbursed to a claimant through set payments. Only personal injury victims are eligible for structured settlements. The settlement agreement governs the terms of the settlement, and the annuity contains the amount the victim will receive over time.
- Some examples of a personal injury case where this may happen can include:
- Car accident or motorcycle crash
- Workplace accident
- Pharmaceutical drug side effects
- Slip and fall
Structured settlements were first used in Canada following a massive lawsuit over thalidomide, a drug many pregnant women took in the 1950s and 1960s to soothe morning sickness. They have become a common alternative to lump sum payments since the 1970s, primarily because:
- Significant increases in some personal injury awards
- Changes in the Internal Revenue Code allow the recipient to have tax liability waived (subject to certain conditions)
A structured settlement guarantees the recipient tax-free income installments over the life of the settlement. Many structured settlement contracts allow claimants to name a beneficiary in the instance of untimely death, a clause allowing for remaining payments to transfer to the beneficiary.
Structured settlements are financial assets that can be sold or assigned through a court order process. Selling a structured settlement annuity may be helpful if the holder faces:
- Medical expenses
- Home purchase or renovations
- Education expenses, such as college tuition
- Pressing financial obligations
- Time-sensitive business or investment opportunities
Selling the Right to Receive Payments
Insurance companies own annuities, not people. They are responsible for holding the money and disbursing it in accordance to the annuity contract. If you sell all or part of your annuity, you’re actually selling your right to receive the payments, rather than a piece of the annuity itself.
Pros and Cons
Structured settlements have grown in popularity because of their many benefits. However, there are some negatives associated with choosing a structured settlement over a lump-sum deal. Consult with your attorney prior to choosing a structured settlement.
Pros can include:
- Structured settlements are a guaranteed flow of income through the agreement term, commonly spanning years.
- Structured settlements are tax-free.
- Payments cannot be affected by the changes in the stock market.
- Payments are a valuable asset that can be valued and sold in a competitive marketplace.
- In the event a recipient dies, structured settlement payments can be deferred to a beneficiary.
- Structured settlements are often a welcomed compromise in a lawsuit, with advantages to both the plaintiff and the defendant. Those who don’t want to pursue long-term litigation may prefer a structured settlement.
Cons can include:
- Although personal injury settlements aren’t taxable, other parts of a plaintiff’s award — such as punitive damages and recovered attorney’s fees — can be taxed.
- Structured settlement payments are not flexible once established. If your circumstances change and you need a larger monthly payment or a lump sum for an emergency, you cannot access the funds without selling payments.
- A judge must approve all sales. If the judge doesn’t approve your reasoning, you can’t sell it.
- If you withdraw from your structured settlement early or incorrectly, surrender fees and IRS penalties may apply.
- Luckily, some of the cons can be mitigated if the annuity holder sells part of or all of their future payments. Structured settlement annuity buyers can provide sellers with an immediate lump sum of cash in exchange for some or all of their future payments and a fee.
Structured Settlement Process
Establishing a structured settlement is a legal process that starts in court.
The plaintiff may be awarded money as compensation for their injury, either as mandated by the court or as negotiated by the lawyers before the end of trial. They may elect to have a structured settlement. If elected, the defendant will pay the plaintiff through the terms of an annuity contract, and the plaintiff will receive installments of the full award over an extended period. Often, negotiating a structured settlement out of court releases the defendant of any further liability from the plaintiff.
Defendants often purchase an annuity for the full amount of the settlement from an insurance company. This purchase fulfills the defendant’s financial obligation to the plaintiff and makes the insurance company responsible for facilitating the agreement with a qualified assignment.
If the plaintiff later decides they need a lump sum of cash rather than installments of their settlement, they can approach a company like CBC Settlement Funding to sell all or part of their structured settlement annuity. Selling your structured settlement is also a legal process that our skilled team of professionals is ready to walk you through. We understand how intimidating court proceedings can be for first-time sellers, so we break down the selling process into easy steps.
The present value of a structured settlement annuity is dependent upon a few different factors including:
- The amount of the payments
- The time of disbursement
- Current interest rates
- Creditworthiness of the issuing insurance company
In addition, a judge must sign off on a structured settlement sale before it is finalized, requiring a plaintiff to present a reason for cashing in their structured settlement annuity.
The company purchasing the settlement may make an offer on the annuity after reviewing these factors. Once both parties accept the offer and the assignment is approved, the company will file a petition in its state court to receive the assignment of the annuity payments in exchange for a lump sum upfront to the annuitant.
Get Cash from CBC Settlement Funding
If you decide selling all or part of your future structured settlement payments is the right choice for your financial needs, CBC Settlement Funding can provide you with a lump sum cash advance for all or part of the total amount. CBC Settlement Funding is accredited by the Better Business Bureau with an A+ rating, and we pride ourselves on providing a superior level of customer service.
If you’re not sure whether selling your settlement annuity is right for you, contact one of our customer service representatives for more personalized information. Our customer service staff will listen to your unique situation and provide a customized cash option to fit your financial needs.