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Structured Settlement Purchase making a Bad Situation Good
A structured settlement is a legal arrangement designed to control the costs of litigation and insurance settlements for insurers and corporations. Such a settlement is often a great deal for an insurer or a large corporation, but it is often a very lousy deal for working people talked into signing one by the insurance company’s lawyers.
The aspects of such a settlement that make it a good deal for the insurer are what can make it a very bad deal for a defendant. In a structured settlement, a defendant does not receive a sum of cash. Instead, he or she receives a payment arrangement called an annuity.
An annuity is actually a contract between an insurance company and an individual. Under the terms of the contract, the insurer agrees to make payments to an individual for period of time. The reason that insurers use such an annuity to pay off a defendant is obvious: it saves them money.
The cost of a structured settlement annuity, even one that is theoretically worth a several hundred thousand dollars, will usually be a fraction of that of a cash settlement. The annuity is actually an investment; much of the money that will be paid out will be generated by interest that is similar to bank interest or by a stock market index.
A Poor Deal for Average People
An annuity can be a poor deal for average people because the size of the payments is often limited. A $150,000 structured settlement annuity may only provide an accident victim with payments of $700 a month. That provides an income of $8,400 a year, which is well below the federal poverty line for individuals. The U.S. Department of Health and Human Services currently sets the poverty line at $11,170 for an individual.
Structured settlements generally don’t provide families with enough money to live on, and they often don’t provide the average family with enough monthly income to cover a mortgage or rent payment.
If an individual has a regular source of income, such as a job or a government benefit, a structured settlement payment can supplement his or her income. Unfortunately, in an emergency such as unemployment, the settlement will not be of much help.
Many people that sign up for structured settlements end up regretting it at the end of the day. They find themselves stuck with regular payments that make little or no difference to their income level.
Investors want to Buy Structured Settlement Annuities
Fortunately, there is a way out of this arrangement that can provide a family or individual with the cash necessary to survive an emergency. A market for secondary or aftermarket annuities has arisen in the past two decades. Many investors, such as wealthy professionals, buy after-market annuities because they can provide a source of additional income that is guaranteed by a large insurance company.
An investor that has the means to purchase several of these annuities can make several thousand extra dollars a month. Unfortunately, a working family stuck with such an annuity probably doesn’t know how to locate such investors.
Factors Can Help Working Families Get out of Structured Settlements
That’s where a professional called a factor comes in. A factor, or factoring company, specializes in purchasing such annuities and reselling them to brokers or investors. The factor will pay a lump sum of cash for a structured settlement annuity.
This cash payment is often of more value to a working family than the monthly payment. A family that receives $100,000 for a $150,000 structured settlement might still be getting a better deal. If the annuity payments were $700 a month, the family would only receive $84,000 in 10 years.
Many structured settlements are set up to pay out over a 20-year or even a 30-year period of time. That can be an extremely bad deal for many people. Not only can inflation destroy the buying power of the payments, but the family can also lose the flexibility of financial planning.
The family will not be able to take such actions as paying off the mortgage, credit-debit, medical bills, student loans, or car loans. In an emergency situation, that extra cash can keep the family out of bankruptcy and preserve the breadwinner’s credit record.
The length of the structured settlement agreement often works against victims. Many older people are not able to take advantage of the agreements because they actually exceed their lifespans. If that wasn’t bad enough, some structured annuities contain a loophole called lifetime contingent payments. That means the annuity payments stop if the defendant dies. The defendant cannot leave the annuity to her children or grandchildren.
A factor can help an older person in that situation by purchasing the settlement annuity for cash. The cash can be left directly to the children or grandchildren or invested in bonds or stocks that can be left to family members.
Games Insurance Companies Play
Unfortunately, insurance companies are trying to limit the ability to sell structured settlement annuities. Some structured settlement agreements now come with a clause that prevents the sale of the annuity. Others may require permission from a judge before the agreement is sold.
An experienced factoring company can help an individual determine if he or she has the right to sell an annuity. The factor can also provide the individual with a free estimate of the annuity’s cash value.
Anybody that has a structured settlement and thinks that it is a good deal should contact a number of different factoring companies or structured settlement buyers. Each of these companies should provide a free quote on the annuity’s value. The chances are that each factor will offer a different price for the same structured settlement. Talking to several factors is the best way to get a good price.
Since most factors operate online, all a person thinking about selling off a structured settlement has to do is fill out the contact form on their website. A person that fills out such a form is under no obligation to do anything and has no obligation to sell.
A factor can help an average family turn the low payments of a structured settlement into a useful sum of cash. Every family and person that is living with such a structured settlement needs to understand the factors and how they work.