There are many companies willing to purchase settlement payments, but securing a lump sum in cash for structured settlement payments can be tricky business. This article discusses a few things you should consider before going through with it.
Selling structured settlement payments should be your last resort. You can realistically expect to get back only half the long-term value of your settlement (maybe a little more, but not much).
Imagine trading $1,000,000 in payments over the next 20 years for $500,000 today. Sound like a good deal? Depending on your circumstances it just might be.
If you absolutely have to trade cash for structured settlement payments go right ahead. But make sure you have good reasons for doing it, and make sure it’s your last remaining option.
Why Find a Company to Purchase Settlement Payments?
There are many reasons why someone might want to secure a lump sum in cash for their structured settlement payments:
- Perhaps the monthly payments just aren’t covering as much as they used to. Over time, inflation will eat away at the dollar-value of your payments.
- Maybe you’re looking to convert that money into an asset such as real-estate or the stock market with hopes of getting a better return.
- You could use the cash to start a business (if you know what you’re doing). Your business plan should factor in the big picture, i.e. the loss of asset-value resulting from the sale of your settlement.
- Some people get a company to purchase settlement payments because they’ve run up a mountain of debt and need to pay it off.
- It might sound outrageous, but some people want the cash for a new Mercedes or a trip to Rio. Even if the court lets you do it* the amount of money you’ll lose in the transaction makes this a supremely dumb move. (*In most cases, before you’re legally allowed to sell your structured settlement you must obtain a “Qualifying Order” – a court order allowing the sale.)
Think long and hard about your reasons for selling…
Is this absolutely necessary?
Can you think of any alternatives to trading cash for structured settlement payments?
Can you ask family?
Get a second mortgage or refinance your home?
Get a personal loan from your bank?
Do you have any other assets you could sell?
If you had $1,000,000 in a savings account that would continue to pay you interest for many years, and you knew that if you withdrew it now you would lose $500,000 dollars, would you do it? Keep this analogy in mind when deciding on your course of action.
Also keep in mind that you don’t have to sell your whole settlement, it’s possible to sell only a portion of your future payments. If you only need a certain amount of money now, you can sell the minimum number of payments that will get you that amount.
Don’t get pressured into selling your entire settlement. Some brokers and funders will try to get you to sell it all. Only let go of the minimum number of payments required to get the cash you need.
Why NOT Sell Structured Settlement Payments?
You don’t want to have someone purchase settlement payments because of the large amount of money you’ll lose long-term. Why do you lose so much when selling your settlement? To understand why, you first have to know how a structured settlement is set-up…
When you agree to receive a personal injury structured settlement as compensation for damages, the liabilty insurance company that gives it to you either buys an Annuity (hopefully from an A+ rated life insurance company) or buys a US Treasury Bond.
This basically means they put a lump-sum of money (principle) into a relatively safe, low-yielding investment. The interest this investment produces is where your structured settlement payments come from.
If you sell your personal injury structured settlement, you’re essentially giving up all the interest the principle will produce in the future. Then you’re left with only the principle. Whomever purchases your settlement is still going to receive those payments. The reason you only get the principle back is because the promise of future payments is NOT equal to the sum of those expected payments.
No matter how secure the investment, there is always risk and the company buying your structured settlement does not value your future payments like cash-money, nobody does.
Another reason you don’t want to get someone to purchase settlement payments is because your payments are tax-free and guaranteed! You’ll be hard-pressed to find another investment vehicle that offers these two major advantages.
So at the risk of sounding like a broken record, think long and hard about your decision. Getting cash for structured settlement payments should be a last resort.
Hire a Good Broker to Purchase Settlement Payments…
So you’ve decided to sell some or all of your remaining payments. Where do you go from here? The first step is to hire a broker. Learn more here: How to Find Structured Settlements Brokers.
If you’ve been searching the net for companies that buy structured settlement payments you’ve likely come across websites for both funders and brokers. There is a difference between a funder and a broker.
Funders (or “funding sources”) are the actual companies that buy your structured settlement payments. These are the big boys – usually major Wall Street institutions. They have the cash.
Brokers set up the transaction. They connect you with the funding sources. They know how to set up the deal. They go out and get a bunch of quotes and negotiate with funders to get the highest offer. Obviously you want to hire a good broker.
To find a good broker to purchase settlement payment, you’re going to have to ask some questions and get some references:
- How long has the broker been doing these transactions?
- How many successful transactions have they brokered?
- What amounts has he obtained for past clients?
Get specific examples (the more the better). And always ask for references. A good broker should have no problem referring you to satisfied clients. Talk to these people – get their opinions about the broker’s knowledge and integrity.
Check with your local Consumer Affairs Office and the Better Business Bureau. Have there been any complaints filed against the broker or their company? What for?
When you do find a broker to purchase settlement payments, make sure you sell as few of your payments as possible to get the money you need. Remember, this is a last resort! You can always go back and sell more of your payments later if you need to. Often a broker or funder will try talking you into selling all of your payments. Don’t do it.