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Inflation can Destroy the Value of Structured Settlements

A structured settlement is not always the great deal that attorneys and insurance companies make it out to be. Yes, such a settlement can provide guaranteed income for a long period of time, but it may not provide enough money for you to live on.

The reason for this is inflation. which destroys the spending power of money over time. The price of everything keeps going up over time, as you have probably noticed. Economists call this inflation and it affects everything, including groceries, gasoline, and housing costs.

Inflation can destroy the value of structured settlement payments fairly quickly. The current rate of inflation in the United States is around 3%. That means a $1,000 a month structured settlement payment is actually worth $970. The situation gets worse over time; a $20,000 a year structured settlement is only worth $19,400 a year because of inflation.

As you can see, a low rate of inflation can take the value of several hundred dollars out of a structured settlement. If the rate of inflation goes up, and the rate of inflation has been over 10% in the U.S. in the past, the value of settlement payments can fall by 10%.

Some, but not all structured settlements contain a mechanism called a Cost of Living Adjustment (COLA) that is supposed to protect recipients against inflation. Unfortunately, COLAs don’t always protect average people from inflation because they are usually tagged to the consumer price index (CPI) set by the U.S. Department of Labor. That rate is based on all products sold in the country.

Many prices often increase much faster than the CPI. An example of this is gasoline prices, which can go up by 10% or 20% in a matter of days. Since the COLA is based on the CPI, the structured settlement payment will only increase by 3%. A person relying on one may not have any extra money to pay for gasoline.

How to Get Out of the Inflation Trap

Insurance companies and lawyers often fail to tell structured settlement recipients about the inflation trap. Many people don’t realize what inflation does to a fixed income such as a structured settlement annuity until they try to live on one.

Fortunately, there is a way to avoid inflation and get the cash that you need right now. You can sell the structured settlement annuity for a lump sum of cash. Many structured settlement agreements let you sell the annuity, and the laws in many states let you sell the annuity.

There are actually many companies that will pay you cash for the structured settlement. That way, you can avoid the destructive power of inflation and still get the value for your money.

Buyers, such as Einstein Structured Settlements, can give you a free quote and let you know how much the annuity is worth. In many cases, the cash amount you can receive right now might be a better deal because it will not be destroyed by inflation.

If you sell the structured settlement, the proceeds can be invested in vehicles that beat the rate of inflation. The stock market and many mutual funds provide a rate of return that keeps inflation from destroying money. Financial planners can help you find investments that will protect the cash from inflation.

How Selling a Structured Settlement can put you in a Better Financial Position

Other people might be better off using the cash from the structured settlement to pay off their mortgage or other debts. Paying off your mortgage eliminates your house payment, which can give you more income in the future. Paying off debts such as credit cards, student loans and car loans can also increase your future income and protect your credit rating.

Getting out of debt may actually put your family in a better position than that provided by the structured settlement. A limited payment that is slowly being undermined by inflation may not allow you to pay off your debts. A lump sum of cash can be used for that purpose.

The cash from a structured settlement sale can also be used to pay off back taxes that you owe to the IRS or state governments. If you have unpaid taxes, the IRS or state governments can garnish your salary and bank accounts. The IRS can also take future tax refunds to cover unpaid taxes.

If you have a lot of debt, selling the structured settlement can help you get into a better financial situation. In particular, it can help you pay off student loans, which cannot be written off in a bankruptcy.

If you don’t have debts or a mortgage, you can invest the funds from the structured settlement sale to improve your family’s future. Many investments, including stocks, mutual funds, exchanged traded funds (ETFs), real estate, indexed annuities, and indexed funds, can earn a higher return than the structured settlement annuity. The return from stock market indexes based on the S&P 500 is usually several times the rate of inflation.

In addition to investing, the proceeds from a structured settlement sale can be used to start a business or purchase a franchise. By going into business for yourself, you can take control of your family’s financial future and create a source of income that keeps growing.

There is no reason why you should sit around and let inflation destroy the “income” from a structured settlement annuity. Instead, you can assure yourself and your family a steadily increasing source of income, or at least pay off your debts by cashing out the settlement.

There’s no reason to leave your financial future in the hands of the insurance company or its lawyers. Instead, you can take an action that can give you a large sum of cash. That cash could be the key to your financial future and you can get it right now.

Selling a structured settlement is an action you should not take lightly. Always carefully research the sale, and check with several reputable settlement buyers to make sure that you get the best price possible.