Structured Settlements

Structured Settlements And The Power Of Annuities by Doug Smith

A structured settlement is a type of financial settlement usually awarded to the victim of a personal injury accident. For example, assume a jury awards the victim damages in the sum of $4 million. Depending on the circumstances, the damages may be awarded as a structured settlement rather than as a lump sum.

The settlement is called "structured" because the initial award ($4,000,000 in this example) is divided up into equal payments that are paid to the victim at precisely defined time intervals.

If the settlement is structured to pay the victim $100,000 a year, the period of the settlement is 40 years. Therefore, the victim would receive a payment of $100,000 each year for the next 40 years. The total amount of cash received by the victim would be 40 years x $100,000 per year, which equals the original award amount of $4,000,000.

Many people think the paying party has to put $4 million into a bank account set up for the victim. They also think that $100,000 will be withdrawn from that bank account each year and paid to the victim. At the end of 40 years, the victim's special account would be empty and the victim would have received the full amount of the award.

That's one way of setting up a structured settlement. From the point of view of the paying party, there is a less costly financial tool for setting up a structured settlement. That tool is called an annuity.

An annuity is a large sum of money set up to pay the recipient a fixed amount of money at regularly-defined time intervals. But wait, you might say. That's the same as putting $4 million in the bank account and paying it out over the 40-year period!

That's almost true. The power of an annuity comes from the fact that it can be set up by depositing a much lesser amount into an interest-bearing or an interest-earning account.

Before continuing, you need to remember these important points. The court ordered the paying party to pay the victim $100,000 a year for 40 years. The paying party is not required to submit a lump sum of $4 million to be paid over the 40-year period. As long as the paying party pays the victim the specified amount at the specified time intervals, they are in full compliance with the law.

U.S. law specifies that annuities can only be set up by independent, neutral third-party insurance companies.

To set up the structured settlement, the paying party does have to have to submit a lump sum to the insurance company to be put into an interest earning account. But the power of annuities allows the paying party submit a lump sum that is much smaller than the total reward.

For example, if the structured settlement account consistently earns 5% interest per year, the paying party only needs to invest a one-time sum of $2,000,000. Each year, the $2 million would earn 5% interest. At the end of each year, the account total would be $2,100,000. The extra $100,000 would be paid to the victim, leaving the original $2 million in the account.

If the paying party can find an account that pays 10% interest, it would only have to invest a one-time sum of $1,000,000. At 10% annual interest, a sum of $1 million makes $100,000 per year, which would be paid to the victim.

At 15% interest, the paying party would have a one-time investment of $666,667 in order to pay the victim the required $100,000 per year.

As you can see, the more interest a structured settlement account earns, the smaller the sum the paying party has to invest in order to create the annual payments to the victim. The above examples use simple interest to avoid the complexities of real-world finance. However, the principle of the annuity works the same.

If it seems that the paying party is getting off easy, consider these points. First, the paying party is being deprived of a large chunk of money for 40 years. Second, they are complying with the terms of the structured settlement. And third, if your company was required to make these payments, wouldn't you do it in the most economical way possible?

The resource below has more free information about how structured settlements work.

Got a structured settlement and don't know whether to keep it or sell it? Find the answers at http://StructuredSettlements.LoansForAnyCredit.com

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How to Sell Your Structured Settlement

Structured Settlements: How You Sell Samuel Towers by Robert W. Hunt

Selling A Structured Settlement

As we have seen in other articles in this series, a structured settlement could turn out to be inadequate to meet your financial needs. The question of selling the settlement comes up in this context.

You have heard that people do cash out settlements. However, the wording in your settlement agreement might give a different impression. The restrictive wording would seem to prohibit any transfer of the settlement.

All this could lead to confusion, at a time when you are in urgent need of lump sum cash. In this article, we seek to remove the confusion and explain the process of cashing out your structured settlement.

You Are Not Selling the Settlement

The settlement was an agreement between you and insurance company (or other party). It is typically executed to settle a claim you made. If the insurance company settled the claim by purchasing an annuity in your favor, the annuity itself belongs to the company. You cannot sell it.

On the other hand, the settlement confers a right on you, the right to receive a future stream of payments. This right to receive payments is your asset. Like any other asset, you do have a right to sell this asset.

How Do You Sell A Structured Settlement

While you are entitled to sell your right to receive future payments, the law makes selling structured settlements somewhat difficult. Such settlements and annuities are considered better for the financial security of most persons. Hence the law encourages such settlements and discourages their sale for lump sum cash.

In such a situation, you proceed as follows:

Consider what you want to use the lump sum cash for. You would have to explain how a lump sum of cash serves your interests better than a stream of payments extending over years.

Locate a buyer that specializes in buying structured settlements. Business firms known as structured settlement factors do this. We look at the qualifications of a good buyer at the end of this article.

Get a quote from the buyer for buying out your settlement payments. Buyers typically discount the future payments to a "present value" and give their quote based on this value.

If you accept the quote, ask the buyer for a pro-forma contract, showing the terms under which they would buy your payments. Review it with your attorney.

Return the accepted pro-forma to the buyer. Reputed factoring firms would then check that the whole transaction is likely to be approved by the court and that all legal requirements have been met.

The firm would then file an application in a court to get an appointment to review the transaction.

On the date fixed by the court, you will appear before the judge and answer questions on why you want to sell the settlement. Other interested parties might also put questions to you. Explain to them how your interests are better served with a lump sum of cash.

If you deal with an experienced and competent factoring firm, the settlement sale would most likely be approved.

The factoring firm pays you the agreed sum within a few days of receiving the court order.

Selecting A Structured Settlement Factoring Company

Ensure that the buyer of your payments is:

Financially sound and able to meet their payment obligations

Experienced in the field and could attend to all legal formalities.

Deals up front with you and do not seem likely to cheat you with too small a lump sum or in other ways.

By now you would have a good idea of how to proceed for cashing out your structured settlement. Go ahead carefully.



Samuel Towers writes on financial issues. The above article is one of a series he has written after researching the currently popular method of structured settlement of claims. He recommends http://www.structuredsettlements.bz as a dependable buyer of structured settlements.




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Cash For Structured Settlements

Cash For Structured Settlements - The Smart Way


Cash For Structured Settlements - The Smart Way by Amit Laufer

For most people when they buy a house it is considered their life�s largest deal. In some cases of structured settlements the compensation and financial considerations for a persons life duration and the total present value of the settlement can reach few millions of dollars. Therefore it is strongly advised to use professional services like annuity consultant and a lawyer specialized in this field in order for you to avoid painful costly mistakes. Here are some tips:



- Think twice before you make a decision. Do you really need that money or you want to feel rich, secure, powerful etc�



- Take only part of the money not all of it, in case of an injury claim the Court needs to approve your request, the judge will want to know what do you need the money for.



- Some Funds will try to convince you that due to Inflation and rising cost of living your annuity payments have less and less buying power over time. Remember that if the Structured settlement was done properly it has a cost-of-living adjustment (COLA) feature build into it in order to offset the effects of inflation over time. So the funds claim on this issue is only partially true as the cost of living index is an artificial and biased measure of the actual inflation over time. Still even 70% protection is reasonable.



- When you get a large sum of money take into account that each bank is F.D.I.C. insured for up to $ 100,000 only! That means that if your sum of money is bigger than that you will need to open additional Account/s in a different bank/s in order to be covered.



In addition take into account that as long as you deposit your money in C.D�s (e.g. Certificate of Deposit) you are covered, but if you invest your money In fixed income, stocks, bonds, and mutual funds. These securities are NOT F.D.I.C. insured!



- In case you transform Lottery winnings payments or a large sum of money from structured settlement, keep it as discrete as you can, It is not recommended to go and buy a Rolls-Roys or any other flashy car, that will bring the criminals and the charity people to chase you. That might even cause your children start to ask for money. Try to keep it a secret.



- It is a good Idea to get more than one or two offers from various private funds before making a decision, remember you are a very lucrative customer, the funds should fight over you! Don�t be timid to negotiate and manipulate them to maximize your money.



Amit Laufer is a writer and internet marketer.
Mba & Bsc Computer and Inforamtion systems.

Owner Editor of: Structured Settlements



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