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The list of benefits and disadvantages of structured settlements is long and convoluted.  Perhaps more concerning is that the wide-range of available opinion is often standardized and frequently contradictory.  While many sources uniformly advise against structured settlement funding transactions, significant evidence suggests selling a structured settlement is sensible and timely.  When contemplating whether or not to sell your structured settlement or when to sell it, consider the personal benefits you gain by maintaining a structured settlement, its current value versus its potential growth expectations, and the risks involved when surrendering the protection and management of your money to a unfamiliar third-party.  Careful deliberation will likely result in a decision to liquefy your structured settlement and a determination that now is the best time to do it.

1.  Recipients of structured settlements benefit the least in such agreements

In a standard structured settlement, the defendant of an original complaint or lawsuit will contract with a third-party management company to administer and pay a negotiated settlement amount to a plaintiff.  The management company then purchases a bond or annuity from an insurance company which assumes defendant’s responsibility to pay the settlement.  Similar to the concept and purchase of savings bonds, defendant benefits by paying only a principal portion of the structured settlement, an amount significantly less than the long-term value of the bond or annuity.  Throughout the structured settlement term, the management company profits by administering the transaction; and, the insurance company profits through use of defendant’s principal payment, funding the bond or annuity at a proportion lower than the insurance company’s own rate of return on investment.  In short, such beneficiaries often recommend and encourage structured settlement agreements for their own gain when, in reality, very few advantages genuinely exist which plaintiffs could not otherwise secure – or even enhance, by smart and strategic personal management of a lump sum distribution.

2.  Inflation will negatively impact your structured settlement

During the past twenty years, inflation throughout the country has averaged 3% annually.  Although price increases of 3% may not be noteworthy in any single twelve-month period, the cumulative effect is astonishing and worthy of significant attention.  For example, twenty years ago the average price of milk was $2.78 per gallon; today, that same gallon of milk costs approximately $3.67.  Although it is impossible to predict the price of milk twenty years into the future, it goes without saying milk will still be an indispensable commodity and the cost will be noticeably higher.  While most fiscal experts agree moderate inflation is a crucial and essential element of a stable economy, any inflation can damage the value of a structured settlement.  Unlike gold, silver, and savings bonds, structured settlements do not appreciate in value – they only mature to value.  A structured settlement of $500,000, scheduled to pay out $25,000 annually for the next twenty years, will never exceed a $500,000 value.  If the recipient of a structured settlement intends to utilize the $25,000 yearly disbursement for such essentials as food and housing costs, medical expenses, or educational needs, consideration must be given to whether or not that $25,000 allocation will stretch as far, or thoroughly cover those growing and higher costs twenty years later – or even sooner.  Recognizing the effect of inflation is a critical component to determining the genuine value of your structured settlement.  Simply stated, if a dollar is worth more today than it will be worth tomorrow, shouldn’t the same be said of your structured settlement?

3.  A structured settlement is only as solid as its financial backing.

Before 1991, Executive Life Insurance Company was one of the country’s largest insurers, with more than 300,000 policyholders and $10.5 billion in assets.  Despite this sturdy appearance, Executive Life had most of its investments in high-risk, high-yield junk bonds and when the market collapsed in the early 1990's, Executive Life became insolvent, was seized by the Insurance Commissioner, and was sold.  Of the 300,000 policies in effect at the time of sale, 5,600 were structured settlement annuities owned by seriously disabled accident victims.  For most of these victims, monthly annuity payments represented their primary source of income, and after the sale of Executive Life, that income was drastically reduced and the security guaranteed by their structured settlement was suddenly jeopardized.  Although structured settlements suggest a posture of durable protection and reliability, the guarantee of long-term income is only as certain as the financial management behind it.  History provides us with shocking stories of corporate embezzlement, irresponsible investments, and reckless money management, the likes of which could weaken a structured settlement and irreparably devastate its intended recipient.

Structured settlements are initially appealing; the prospect of receiving supplemental income over an extended period of time, coupled with the promise of a greater total yield, generates an immediate sense of long-term security.  A later and closer look however, often results in a different judgment.  If you are questing the direct benefits or your structured settlement, concerned about the consequences of immediate and continuing inflation, or interested in managing and taking control of your individual assets, you have prudently come to the realization that selling your structured settlement is a wise idea, and now is the right time to do it.