Structured Settlement Help
Selling Structured Settlement
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Selling Structured Settlement (History)
In the early 1980’s there were some changes in the laws that provided favorable tax benefits to insurance companies that established structured settlements. Following this there was a large increase in the number of these types of settlements offered and set up. The insurance company also has another incentive to provide this type of settlement which is they benefit from the financial concept of time value of money. An insurance company can purchase an annuity to fund the payment of the settlement they are giving to the injured party. But because of the time value of money the insurance company can buy an annuity a less then the full value as the annuity will generate interest and grow over time to meet the original amount of the settlement terms. So the injured party will receive their full benefit from the settlement in their recurring payments but the insurance companies out of pocket expenses is less than face value.
There are advantages for the plaintiff or the injured party as well. Receiving their payments over time certainly is a way to help them ensure that they are financially able to meet their obligations over many years to come and not have to worry about “keeping the lights turned on.” In addition, though the payments from this type of settlement are tax free providing a huge incentive for this type of agreement. So the payments from a settlement are not taxed but if one were to take a lump sum payment and invest the proceeds those payments would be taxed.
The built disadvantage of a plaintiff taking this type of settlement is the inflexibility due to the tax advantages – which have to meet some basic requirements. The requirements state that payments must be fixed, they cannot be deferred, they cannot be accelerated or increased or decreased by the recipient. It is difficult to plan out what ones financial situation and needs may be in ten or twenty years down the road. There are always unforeseen circumstances that can change the basic needs. So with the initial agreement being inflexible this makes a structure a bit less attractive. However, in the late 1980’s “factoring companies” launched to meet this need and provide settlement recipients with lump sum cash if the need arises for their future payments.
These types of settlements were often considered for young people so that they did not quickly or foolishly spend the settlement. A rather astonishing industry statistic showed that 25-30% of all cash settlements are spend with the first two months. In addition, nearly ninety percent of cash awards are spent within five years.* “Structured Settlements – The Assignability Problem,” Andrada
So the reality is that the majority of lump sum settlements spend the full amount unwisely and are left with no money and at times unable to work from their injuries. However, those that receive a structure agreement can remain financially secure for ten or twenty years or longer.
There are advantages for the plaintiff or the injured party as well. Receiving their payments over time certainly is a way to help them ensure that they are financially able to meet their obligations over many years to come and not have to worry about “keeping the lights turned on.” In addition, though the payments from this type of settlement are tax free providing a huge incentive for this type of agreement. So the payments from a settlement are not taxed but if one were to take a lump sum payment and invest the proceeds those payments would be taxed.
The built disadvantage of a plaintiff taking this type of settlement is the inflexibility due to the tax advantages – which have to meet some basic requirements. The requirements state that payments must be fixed, they cannot be deferred, they cannot be accelerated or increased or decreased by the recipient. It is difficult to plan out what ones financial situation and needs may be in ten or twenty years down the road. There are always unforeseen circumstances that can change the basic needs. So with the initial agreement being inflexible this makes a structure a bit less attractive. However, in the late 1980’s “factoring companies” launched to meet this need and provide settlement recipients with lump sum cash if the need arises for their future payments.
These types of settlements were often considered for young people so that they did not quickly or foolishly spend the settlement. A rather astonishing industry statistic showed that 25-30% of all cash settlements are spend with the first two months. In addition, nearly ninety percent of cash awards are spent within five years.* “Structured Settlements – The Assignability Problem,” Andrada
So the reality is that the majority of lump sum settlements spend the full amount unwisely and are left with no money and at times unable to work from their injuries. However, those that receive a structure agreement can remain financially secure for ten or twenty years or longer.
with No Obligation"