You may be given the choice of spreading your payment over many years or taking your money in one lump sum if you are due a payout from a lawsuit or insurance claim. In several ways, the structured settlement makes good financial sense. However, it may not appeal to everyone.
Blowing through a large lump sum of money may be a legitimate fear for you if you have a spending problem. You can get long term financial security when you receive payments on a yearly or monthly basis for into the future if you choose a structured settlement.
You cannot call the company to beg for a lump sum after the fact once you have agreed to a structured settlement. Fortunately, there are ways to get out of this arrangement. You probably will not be able to modify your agreement with the company paying the settlement, but selling your structured settlement payments is an option. Before going this route, there are three things you should know.
State and federal taxes will likely be owed by you
A major plus of a structured settlement is that the money you receive is tax free. But, if you sell the structured settlement for a lump sum, this tax break no longer applies. You will owe state and federal taxes in all likelihood. Also subject to taxes is any money you receive in interest payments if you were deposit the cash into an interest bearing account.
Not all of your settlements payments need to be sold
There is the choice to only sell some of your structured settlement payments if you do not need the lump sum value of the entire thing. If you want to pay off your debts or if you need immediate cash for a down payment on a house, this is the ideal alternative. Without sacrificing the equity of future settlement payments, you can get the cash you need.
How much money you get varies
You may only get a percentage of the full settlement amount with the lump sum you receive when you decide to sell your structured settlement payments. This is because a fee is taken by the company that buys your settlement. For each person, the amount you receive varies. To determine your lump sum, you will have to talk to different companies.
Depending on what type of structured settlement you have, you can sell the settlement payments to
- Pay college tuition
- Buy a house
- Start a business
- Pay medical expenses
- Avoid foreclosure
There are real consequences to forgoing your structured payments, so this is not a decision to take lightly. Always weigh the pros and cons as you would with any financial decision. You can lose a large percentage of your money (40 percent or more) between the tax consequences and the fees paid to the firm buying your settlement.
Consider other alternatives for immediate cash, such as a personal loan, and put a lot of thought into it before selling.