Key Takeaways

  • Selling a structured settlement converts future payments into immediate cash
  • Court approval is legally required to sell settlement payments
  • You can sell all or just a portion of your future payments
  • The sale typically results in receiving less than the full value
  • Working with reputable companies helps protect your financial interests

What Is a Structured Settlement?

A structured settlement is a financial arrangement that provides periodic payments to an individual who has received a legal settlement, often from a personal injury lawsuit, medical malpractice case, or wrongful death claim. Instead of receiving a lump sum payment, the settlement is structured to deliver regular payments over time.

These settlements are typically funded through annuities purchased from life insurance companies. The payments may continue for a specific period or for the recipient's lifetime, depending on the terms established. Structured settlements offer tax advantages as the payments are generally tax-free, providing financial stability and security for individuals who may need long-term financial support due to injuries or other circumstances.

Why People Sell Structured Settlements

Many individuals choose to sell their structured settlements when facing unexpected financial challenges or opportunities. Common reasons include:

  • Medical expenses: Sudden health issues may require immediate funds for treatments not covered by insurance
  • Education costs: Financing higher education for yourself or family members
  • Home purchase or repairs: Making a down payment on a home or addressing critical repairs
  • Debt elimination: Paying off high-interest debts like credit cards or loans
  • Business opportunities: Investing in a promising business venture requiring capital

While structured settlements provide financial security through regular payments, life circumstances don't always align with preset payment schedules. The ability to convert future payments into immediate cash allows individuals to address current financial needs or take advantage of time-sensitive opportunities. However, this decision should be carefully weighed against the long-term benefits of maintaining the original payment structure.

The Legal Process of Selling Your Settlement

Selling a structured settlement involves a regulated legal process designed to protect the seller's interests. The steps typically include:

1. Initial consultation: Meet with a settlement purchasing company to discuss your needs and receive a quote for your payments.

2. Documentation: Provide all necessary paperwork related to your structured settlement, including the original settlement agreement and annuity contract.

3. Contract review: Carefully examine the purchasing agreement with legal counsel to understand all terms and conditions.

4. Court petition: The purchasing company files a petition in your local court requesting approval for the transfer.

5. Judicial review: A judge evaluates whether the sale is in your best interest according to state laws.

6. Court hearing: You must appear in court to confirm your understanding of the transaction and its implications.

7. Judicial approval: If approved, the judge issues a transfer order authorizing the sale.

8. Funding: After approval, the purchasing company provides payment according to the agreed terms.

This legal oversight exists because of the Structured Settlement Protection Acts enacted in most states, which aim to prevent exploitation and hasty decisions that could harm settlement recipients' long-term financial well-being.

Financial Considerations and Discount Rates

When selling a structured settlement, you won't receive the full face value of your future payments. Settlement purchasing companies apply a discount rate to calculate the present value of your future payment stream.

This discount rate typically ranges from 9% to 18%, depending on various factors:

  • Current market interest rates
  • The total value of payments being sold
  • The time frame of the payments
  • The financial stability of the insurance company backing the annuity
  • The purchasing company's profit requirements

For example, if you have $100,000 in future payments, you might receive $50,000 to $80,000 in immediate cash, depending on the applied discount rate and payment timeline. Some companies might offer a lower discount rate but add hidden fees, while others might quote a higher discount rate with no additional costs.

It's advisable to obtain quotes from multiple purchasing companies to compare offers. Pay attention to the effective annual discount rate rather than focusing solely on the lump sum amount. A slightly higher immediate payment might come with unfavorable terms that could impact your financial situation.

Partial vs. Full Sale Options

When considering selling your structured settlement, you have flexibility in how much of your future payment stream to convert to immediate cash. The options include:

Partial sale: Selling only a portion of your future payments allows you to address immediate financial needs while preserving some of your long-term payment security. Options include:

  • Selling a specific number of payments while keeping others
  • Selling a percentage of each payment
  • Selling payments from a specific time period

Full sale: Converting all remaining future payments into one lump sum provides maximum immediate liquidity but eliminates the ongoing financial security of regular payments.

A balanced approach might involve selling only enough payments to address your current financial need. For instance, if you need $25,000 for medical expenses, you might sell just enough payments to cover that amount rather than liquidating your entire settlement.

Your decision should align with both your immediate cash needs and long-term financial security. A financial advisor can help evaluate which option best serves your overall financial health while minimizing the long-term impact of selling your structured payments.

Frequently Asked Questions

How long does it take to sell a structured settlement?

The process typically takes 45-90 days from initial application to receiving funds. The court approval process accounts for most of this timeframe.

Can I sell only part of my structured settlement?

Yes, you can sell specific payments or a portion of each payment while keeping the remainder intact, allowing for both immediate cash and continued future payments.

Will I have to pay taxes when selling my settlement?

Generally, the proceeds from selling a structured settlement maintain the same tax status as the original settlement. For most personal injury settlements, this means the funds remain tax-free.

Can my request to sell be denied by the court?

Yes. Judges must determine if the sale is in your best financial interest. If they believe the sale would cause financial hardship or that you don't fully understand the implications, they may deny the request.

Can I sell my settlement if I've already sold payments before?

Yes, you can potentially sell remaining payments from a structured settlement even if you've previously sold a portion, subject to court approval and assuming you have sufficient payments remaining.

Conclusion

Selling a structured settlement involves weighing immediate financial needs against long-term security. The decision requires careful consideration of discount rates, legal requirements, and personal financial goals. By understanding the process and consulting with financial and legal professionals, you can make an informed choice that aligns with your current circumstances while protecting your future interests.

Conclusion

Selling a structured settlement can provide necessary financial flexibility when life circumstances change. However, it's a significant financial decision that should be approached with thorough research and professional guidance. Take time to understand the discount rates offered, explore partial sale options, and ensure you're working with a reputable purchasing company. Remember that court approval exists to protect your interests, so be prepared to clearly articulate why the sale benefits your financial situation. With careful planning and the right approach, converting some or all of your future payments to immediate cash can be a sound financial strategy that helps you address current needs while maintaining long-term financial health.