Structured settlements are created when a personal injury lawsuit is settled, for example as the result of a product liability, premises liability or wrongful death claim. Structured settlements are devised to provide claimants’ financial compensation through long term periodic payments, which can run as long as 30 years or more, including life. Monthly and/or yearly payments are guaranteed through an annuity contract which is backed by a highly rated life insurance company. However, sometimes settlement recipients regret having entered into such a long term commitment and would have preferred to have received a lump sum settlement initially. Unfortunately, the annuity settlement agreement prevents any changes to the terms and conditions agreed to in the settlement agreement. In addition, most settlement recipients are unaware of their legal right to sell their settlement payments in exchange for a one time lump sum cash settlement. The question is who to turn to for this financial assistance.
Settlement annuity buyers – who are they?
Structured settlement annuity buyers are composed of specialty finance companies, brokers and more recently a select group of annuity companies.
Specialty finance companies purchase settlement annuities at discounted rates according to their present value calculations. Essentially, these calculations take the payments due in the future and value them to the present. It is based on the old axiom that $1 due today is worth more than tomorrow. For example, if someone wanted to sell you a $15,000 payment due in eleven years from his uncle Henry, and wanted to sell this annuity payment to you today, how much would you offer this person, if anything at all? Well, these specialty finance companies are dedicated to purchasing these annuity payments everyday and engage in the daily practice of “factoring” in order to offer you a reasonable quote.
Brokers are simply middlemen that have relationships with a few direct buyers and shop your settlement annuity payments to these few buyers. Today, brokers disguise their broker/buyer relationship behind auction or bidding websites. Depending on their sales commission structure, they will present you with a few offers or simply relay to you their best and highest offer. However, be cautious with brokers that present you with an offer which may not be the best and highest offer, but will provide the broker with the best and highest commission.
More recently, there are a couple of life insurance companies that will offer to purchase their customers structured settlement annuity payments. These insurance companies use their inside knowledge to gain leverage in offering unsolicited low-ball offers Usually, the offers provided are lower than dealing with a direct buyer or even a broker. Therefore, be wearing of accepting these buy-out offers without shopping around.
When selling your structured settlement payments, it is wise to take the following points into account:
Speak to a CPA or other financial specialist;
Obtain several lump sum cash settlement quotes;
Become familiar with your state’s Structured Settlement Protection Act;
Deal with a reputable company;
Read and understand the buy-out contract and all disclosure statements;
Understand the transaction, including the required court approval process;
Seek an attorney if you feel confused with all the legal mumbo-jumbo