Structured Settlements have been a favorite resolution in personal injury and wrongful death cases for the last three decades. Tailored to the needs of the individual and to the amount awarded to that individual, they can be a great plan for a lifetime of financial security in the wake of a tragedy. However, sometimes those needs change. When that happens, structured settlement owners have options on accessing their money more quickly.
The Structured Settlement Process
The process of issuing a structured settlement is a complicated one that results in a simpler, easier solution for someone who wins a case.
If in a court proceeding a plaintiff is determined to be owed money, a structured settlement can be considered instead of a lump sum. Both sides work with a trained consultant to determine the amount of money and the needs to the plaintiff. The consultant then uses the money to purchase an annuity from a life insurance company.
The annuity is managed by a life insurance company separate from the at fault party. The money is thus protected from market fluctuations, recessions and all the other risks typically associated with investments. The plaintiff, in other words the person harmed, simply receives a scheduled series of payments for a set amount of time.
It’s a solution that many people take advantage of: Nearly $6 billion in new structured settlements are issued each year, according to the National Structured Settlements Trade Association.
How Structured Settlement Issuing Companies Work
Structured Settlements are used by courts in many different types of cases to replace or supplement income that was lost through the fault of someone else. Since they’re conducted through a third party, it also means someone doesn’t consistently need to associate with the person or entity that wronged them.
Structured Settlement Issuers*:
- New York Life
- Berkshire Hathaway
- Liberty Mutual
* StructuredSettlements.com has no relationship to any of the above listed issuers and is not engaged in the issuance of new structured settlement policies.
The structured settlement issuing companies function in a manor that shields owners as well. Structured settlements don’t affect an individual’s ability to qualify for other forms of aid. Meaning, if someone is set to receive a settlement, the money they receive from it does not affect their ability to qualify for Medicaid, Social Security and other disability benefits.
The income from structured settlements is also shielded from taxes. This flexibility is why so many litigators recommend structured settlements to their clients rather than a lump sum payout after winning a case.
Types of cases that can result in a structured settlement:
- Severe Personal Injury: Research shows that the more serious the injury is, the more likely a structured settlement will be awarded instead of a lump sum.
- Workers Compensation Cases: If you’re hurt on the job, a court can award you a structured settlement to pay for the damages.
- Wrongful Death: When a court decides someone is at fault, the surviving family members of a victim can be awarded a structured settlement.
Your Right to Sell Structured Settlement Payments
If you have a structured settlement you have a right to sell your payments. Facing a crisis like foreclosure or not having transportation to get to a job, many structured settlement owners choose to sell some or all of their payments. When a structured settlement is set up, it’s typically tailored to meet the needs of the injured or surviving person. Unfortunately sometimes those needs change and the structured settlement owner needs access to his or her money right away. Selling future payments allows someone to get access to the money they need quickly.
Federal and state laws exist to protect consumers against unscrupulous companies. People who need quick access to the funds tied up in a structured settlement turn to purchasing companies to buyout their future payments in exchange for a lump sum. Unfortunately, there are companies out there waiting to prey on people who are in a desperate situation.
When working with a structured settlement buyer , make sure you have all of the end-of-deal fees in writing and no attorney or compliance fees are passed onto you. Bottom line: if your quote says you should get $65,000 for selling your payments that is the amount that should be listed on the check.
“Will I have to talk to a judge to sell my structured settlement?”
Yes, in order to cash out your structured settlement you will need to present your case before a judge. However, a structured settlement buyer should be able to help you along the way with whatever paperwork you will need and how to file it properly. Don’t be nervous. This regulation was put in place to protect you, the consumer, to ensure it is in your best interest. In the end, the majority of transfers go through.
Structured Settlement Laws and Regulations
The issuing and selling of structured settlements is regulated on a national, state and sometimes even local level.
Congress passed the Periodic Payment Settlement act in 1982, which streamlined the use of structured settlements in personal injury lawsuits. The legislation shielded structured settlement payments from federal, state and local income taxes. Congresses thinking was that by setting up payments over time, individuals would be protected from spending a lump sum too quickly and thus jeopardizing their financial future.
Federal law, as well as additional regulations in 48 states, requires judicial approval to transfer structured settlement payments. The judge evaluates each case to ensure they meet a “best interest” standard. The judge will ask you a series of questions to make sure you understand the consequences of selling your payments and will be financially secure once the transfer is complete.
New Hampshire, Wisconsin and the District of Colombia don’t have Structures Settlement Protection Acts, but owners can still sell payments in the state where the insurance company is located. Some municipalities even have stricter regulations and are typically in areas where there is a larger at-risk population with structured settlements.
Structured Settlements and Minors
Adults aren’t the only ones awarded structured settlements. Cases are often settled which award a significant amount of money to a minor in the form of a series of payments to cover the living expenses of a child.
Such cases are often won because the plaintiff is able to demonstrate that the child’s life will be irrevocably changed for the worse. It might be that because of an incident caring for the child will cost significantly more money. In the case of a wrongful death case, a child is awarded money that a parent or close family member would have been able to provide had their life not been cut short.
Cases that Result in Structured Settlements for Minors:
- Personal Injury: Structured settlements were actually first issued after children were born with severe birth defects because of exposure to the drug Thalidomide in the womb.
- Birth Injury: Many birth injuries are inevitable. However some birth injuries happen because of doctor negligence.
- Medical Malpractice: Birth isn’t the only time a minor can be the victim of medical malpractice.
- Wrongful Death: When a party is deemed at fault in the death of a parent, a wrongful death case can emerge which results in a structured settlement.
Managing a large sum of money meant to last decades can be difficult for a young person or parent. So structured settlements became used more to ensure the money was retained and used for the child’s care as prescribed by the court. Having a scheduled series of payments makes it easier to ensure a child has their basic needs met, like shelter, clothing, food and medical care.
Selling a Structured Settlement Issued to a Minor
Selling payments for a minor’s settlement is significantly more regulated on a state and federal level. Among other regulations like needing substantial documentation to prove a serious financial need, judges typically appoint a Guardian Ad Litem to evaluate the payment sale and to verify that it is in the best interest of the seller.
Selling your structured settlement payments is a legal process between you, a structured settlement buying company, the insurance company and the court system. Getting in touch with a representative at a buying company can help you understand how selling your payments works and let you know just how much money you can get if you cash out your settlement.
The Step-By-Step Process of a Selling Structured Settlement
Understanding how the process works and what your role is during the sale is important if you’re considering selling your settlement payments.
Deciding to Sell Your Settlement
With so many options for financing available, some people wonder why selling their structured settlement should be considered.
In most cases, the reason someone looks into selling their structured settlement payments is because they have a sudden expense they’re looking for a way to access a large sum of cash to cover it.
Others regret setting up a structured settlement to begin with. If you’re feeling guilty for making there wrong choice originally between the settlement and the lump sum: don’t. Making a serious financial decision amidst the pain of a debilitating injury is challenging.
Reasons for Selling
There are as many reasons for wanting to obtain a structured settlement payout as there are people who seek them out. Some of the most common reasons include the following:
- Purchasing a home
- Buying a car
- Educational expenses
- Paying off debt
- Starting a business
- Medical expenses
- Funeral or end of life expenses
- Unexpected moving expenses
- Vacation costs
Exploring your options
Once you’ve decided that it is in your best interest financially to sell, you can start the process by reaching out to a structured settlement buying company. The representative will ask why the settlement was granted, who pays on the settlement, how much the settlement pays per month or per installment, and so on.
After gathering basic information, the representative will discuss the different options available, and go into detail about what the outcome will look like given each option available. It’s this stage of the process where the owner finds out just how much they can expect to receive by cashing out. Deciding how much of the payment stream to sell, how much future payments are worth today, how the sale should be structured, and other details are all wrapped up in this step of the process – all with you making the final call.
How much money can you get for your settlement?
The number of payments, how far in the future the payments are scheduled to pay out, and current economic conditions all play into how much money you can receive.
Together these considerations factor into what the discount rate for your settlement will be. The structured settlement buying company will explain how discount rate works and what it will look like for your particular situation, in other words how much money you can receive.
It’s important to understand that you will not get the full price of your settlement. That’s where the discount rate comes in, and it can be as low as 50 percent of the total of your future payments. Typically the offer is around 60 to 80 percent of the value of your original payments. The discount rate is the tradeoff for getting access to your money right now.
Fill Out Paperwork
Next, you fill out the necessary paperwork. Don’t be intimidated: While this process is the most crucial step to complete, your representative will guide you through the entire process.
These are the documents your specialist will need:
- Two forms of identification. We will need two IDs to verify your identity: A photo ID, like a driver’s license or passport, and a non-photo ID, like a birth certificate or a Social Security card.
- Completed Application. Your specialist will provide this two page document to you.
- Copy of the original Settlement and Release Agreement.
- Copy of your Annuity Policy.
This paperwork is used to collect important information about the settlement type, and to outline the decisions made in the previous step, particularly as they relate to sale structure and payout amount. Your documents will be securely managed and kept confidential throughout the process.
Finally, the paperwork has to be reviewed by a judge. In some cases, the seller of the settlement will have to appear in court. Again, your specialist will walk you through what to expect in this process so you feel prepared and comfortable. However, the necessity of appearing in court depends on the court through which the sale is processed and is determined on an individualized basis.
To do so, the judge will ask a series of questions like:
- Do you understand the transfer agreement?
- Did you have an opportunity to review this transfer with a financial professional not connected to the structured settlement buying company?
- Do you understand that selling payments means you will receive a lump sum less than the total amount of future payments?
- Do you feel comfortable that you shopped around for the best deal?
Selling a settlement is a legal process, so the seeing a judge is crucial in finalizing a legitimate sale. The judge has the final say in whether or not the structured settlement sale can go through.
Judges can and will deny sales if they believe something is wrong. Judges deny selling payments if the seller cannot demonstrate clearly that they have a financial need. They can also deny sales if they believe the seller is getting a bad deal from the structured settlement buying company. There’s no need to be afraid or intimidated by the judge, they’re looking out for your best interest.
The truth is most sales from good companies are approved by judges. After everything passes through the court system, the payment is issued and the sale is complete.
Time and Expectations
Selling a structured settlement in order to receive a cash payout in one lump sum is a highly individualized process. Depending on the type of settlement, the total amount, the payout structure, and other facets of the original structured settlement, the process can vary in length of time from person to person.
The process of selling your payments takes 45-60 days.
A person hoping to sell their structured settlement, in whole or in part, should prepare for their meeting with a financial adviser by collecting all paperwork and documents obtained from the original settlement. The more prepared the seller of the settlement is, the faster the process will go. However, the representative from the structured settlement buying company in charge of the sale will be the best source of information for a customized timeline of the sale process.
Once the paperwork enters the court process and a judge signs off on the sale, funds are usually delivered within three to five business days.