If you are due a payout from an insurance claim or perhaps a lawsuit, you may be given the option to take your money as one lump sum or spread your payment over several years. A structured settlement does not appeal to everyone, but in a lot of ways, this payment structure makes good financial sense.
Let?s say you have a spending problem. In this case, you may fear that you?ll blow through a large lump sum of cash. With a structured settlement, you receive payments on a monthly or yearly basis for years to come, which can give you long-term financial security.
Unfortunately, once you agree to a structured settlement, you can?t call the company after the fact and beg for a lump sum. However, this particular arrangement is not written in stone. And while the company paying the settlement may not modify your agreement, you can?sell structured settlement payments. There are, however, things you should know before going this route.
1. The amount you get will vary.?
If you decide to sell your structured settlement payments, the lump sum received may only be a percentage of the full settlement amount. This is because the company that buys your settlement takes a fee. The amount received varies for each person, and you will need to speak with different companies to determine your lump sum.
2. You will likely owe federal and state taxes.
The money you receive in a structured settlement is tax-free, which is a major plus. Unfortunately, this tax break does not apply if you sell the structured settlement for a lump sum. In all likelihood, you will owe federal and state taxes. And if you deposit this cash into an interest-bearing account, the money you receive in interest payments is also subject to taxes.
3. You don’t have to sell all of your settlement payments.?
If you do not need the full lump sum value of your structured settlement, there is the option to only sell some of your payments. This is the perfect alternative if you need immediate cash for a down payment on a house or if you want to pay off your debts. You can get the money you need without sacrificing the equity of future settlement payments.
Good Reasons to Sell
Other than buying a house or paying off debt, you can sell structured settlement payments and use the cash for practically any purpose, such as paying college tuition or starting a business. This isn?t a decision to take lightly, as there are real consequences to forgoing your structured payments. With any financial decision, weigh the pros and cons. Between the fee paid to the firm that buys your settlement and the tax consequences, you can lose a large percentage of your money. For this reason, think before selling and consider other alternatives for immediate cash, such as a short-term personal loan.