Should you agree to a structured settlement?
It is common for accident victims to accept structured settlements from the insurance company or the at-fault party instead of settling for a lump sum payment. When you agree to a structured settlement, you are agreeing to receive a given amount of money in installments over a set amount of time. Normally this will be around 10 years or a lifetime.
Both the plaintiff and the defendant will benefit from a structured settlement. Let's say you were injured in a car accident and you now require constant medical care. If you settle for a lump sum, you will need to pay taxes on this money and then you will need to keep it safe so you do not spend it on other things besides your medical needs. If you settle for a structured settlement, you are guaranteed an income will be available for all your medical expenses over the agreed upon time frame. The insurance company does not need to worry about fronting all the money at once and they often pay you through annuities. This makes a structured settlement the perfect arrangement for both parties.
If you have done your research, you will find that you can invest the money from your settlement and turn a large profit on it. In order to invest the money, you need to settle for a lump sum and then pick the right investments. You will need to pay income tax on this money, but you can easily double it if you are a savvy investor. If you agree to a structured settlement, there is no going back. You cannot change your mind and decide to have a lump sum instead. Depending upon your state and your structured settlement, you may be able to sell it for a loss. This will allow you to get your hands on the cash you need now instead of waiting for all that money to be paid to you.
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You can use the money from a structured settlement however you desire. This money should be used to pay for your medical expenses, but many people will use it to pay off their debts, purchase a home or a new car, and send their children to college. It is your money and you can do whatever you want with it. Just remember, that once the money is gone, it's gone. That is why a structured settlement is often a smarter move because it limits the amount of money you receive at one time. This way, if you spend $20,000 on a new car, you will get another $20,000 in 5 years to pay for your medical expenses. If you take out a loan over those 5 years to pay for your medical expenses, you are losing money because you are paying interest on the loan.
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Quick cash for a structured settlement, is it worth it?
If you find yourself desperate for cash, you may consider selling your structured settlement. While this may sound like a good idea, you really need to consider what you are giving up. When you sell a structured settlement, the factoring company is giving you cash in exchange for the future payment rights of your structured settlement. They will offer you a discounted present value amount for your annuities, which means you won't receive the full amount of money you were promised in the structured settlement. Not only do you lose money when you sell your structured settlement for quick cash, you will have to pay taxes on this money. When you keep it in a structured settlement, the money is tax-free. Even though getting cash today may seem like a good idea, the only person winning here is the factoring company. They will discount rates by about 20% which means they would make roughly $55,000 if you sold your structured settlement to them that was worth $120,000. That doesn't include the amount of money you will need to pay in legal fees, taxes, and other fees. The factoring company will also charge you for advertising costs, attorney fees, broker fees, court fees, and any other legal fees that need to be included. If you are a smart investor, you may be able to take this money and watch it grow and double the amount you would have been paid through the structured settlement. If you don't have a clue about investing, you have just kissed goodbye to $50,000 that was your money to use for future needs. To some people it does make sense to sell a structured settlement because it does not leave room for inflation or a recession. The money is essentially sitting in an annuity account when it could be collecting interest in another account. It's really up to you if you want to sell your structured settlement for cash, but you better know what you are giving up before you sign the dotted line. |
If you do get desperate for cash, you can sell all or some of your structured settlement for some quick cash. This will help you cover the immediate expenses you have and you can invest the rest or put it into a savings account or a CD. If you choose the lump sum or you sell your structured settlement for cash, you better be smart about your money. What if some unforeseen situation comes up? How will you pay for future needs if you have spent all the money from your structured settlement?
Here are a few reasons why a structured settlement is a better idea than a lump sum payment:
- 1. You can choose how often you want to receive payments. If you know you spend money once you receive it, you can choose to receive your payments monthly instead of yearly. This can help you control your spending and it will help you use the money from your structured settlement for your needs.
- 2. Structured settlements have a large tax advantage over a lump sum. You will need to select the right annuities and have minimal input in the money. If you are able to do this, you will receive the money tax-free or for a minimal tax amount. A structured settlement will include a lesser amount of money going to taxes than a lump sum will and the money will be automatically taken care of for you by the annuity company.
- It can help individuals that are disabled or incapable of working. A structured settlement will guarantee your income for life and you do not need to worry about how you are going to survive.
- If you die as a result of the accident or medical malpractice, a structured settlement will provide monthly payments to your beneficiaries. Your family will be taken care of and all your medical and funeral expenses will be paid directly from the structured settlement.
- The money can be used to help you make large purchases like a new home or a new car. It can also be used to pay off your debts. You can choose to receive half of the money in a lump sum to pay off your debts and the rest will be placed into annuities.
- A lump sum will give you money now, but it is up to you to control this money. You will need to be responsible with the money to make sure it goes to all the right things. If you struggle with finances, you can easily spend all the money and be left penniless. A structured settlement provides you with continuous help for many years and this can help you stay out of debt.
- If you choose to have a lump sum, you need to invest this money on your own. Not only will you need to pay taxes on the initial amount you are given, but you will need to pay taxes on any interest you earn with the invested money.
- A structured settlement is safer than a lump sum. You can divide up the money and designate 3 or 4 different companies to control the money. They will be responsible for upholding the agreement and making the payments to you. This will protect you if any of the companies declare bankruptcy because you will still receive your money from the other companies. Plus the money is guaranteed so you will still receive your money from the company that declared bankruptcy.
- Individuals that receive a lump sum are often hounded by other people that want money. They find themselves in the middle of a tug-of-war with their money and it can be difficult to keep people away from their money. If you choose to receive your money through structured settlements, it will look like you have a low amount of money and this will help you use the money for the important things like your medical costs.
- There is no worry. When you have a structured settlement, you do not need to worry about where your money is, what you need to invest in, and how much money you have left. You can go on living your life like normal and have peace of mind knowing that all your expenses will be paid for.
A structured settlement isn't ideal for everyone, especially those that know how to seriously invest their money and turn a profit. It works great for many people though, especially minors and individuals that have been seriously hurt. The money from a structured settlement will be the same throughout the duration of the agreement. This will cause you to lose some money in the future because the agreement does not account for inflation or a recession.
It is important to hire a good attorney and to speak with a tax advisor when you are considering a structured settlement. There are numerous comprehensive structured settlement options that will provide you with benefits for life. You should always consider your cost of living and decide how much money you will need from the structured settlement to survive. Some attorneys and insurance companies may try to push you into a structured settlement because they will both profit from it. These individuals usually have agreements with the annuity company and they will receive a generous commission for signing you up. Always avoid these lawyers and look for one that will crunch the numbers for you and show you if a structured settlement or a lump sum is better for your financial needs.
The last thing you need to consider with a structured settlement is your life expectancy. If you have been seriously injured, your life expectancy could be shorter. Always talk to your doctor about your medical needs and use this information to make your decision. It may benefit your family to receive a lump sum now to pay for all your medical needs and the cost of your funeral expenses if you do pass away in the near future. The rest of the money can then be invested so your family will have a guaranteed income for life.
No matter what you decide, remember that a structured settlement is a long-term, tax-free income. A structured settlement provides you with enough money to cover all your medical needs and it can help you purchase other things like a new car, a college education, and even a new home.
