If you've received a structured settlement, then chances are you've seen offers to sell that settlement for a lump sum cash amount. Is the opportunity worth taking? That depends on your current financial situation, as well as the amount and length of your structured settlement. The following explains the pros and cons involved in selling your structured settlement.
The Selling Process Explained
The process starts by contacting a reputable firm specializing in buying structure settlements. After negotiating a buyout amount, the recipient must have a judge approve the buyout. This often involves explaining how and why the initial settlement is insufficient for your financial needs.
The entire process isn't instant. In fact, it could take up to 90 days for a settlement buyout to be finalized. This makes a structured settlement buyout an event to carefully plan for, especially if your finances depend on a buyout.
When Selling is a Good Idea
While receiving a steady stream of predictable payments is always a good thing, your own personal finances aren't written in stone. There are plenty of things that could make having a lump sum of cash crucial – whether it's paying for college tuition, handling your mortgage payments after a layoff or an unexpected move to a new place.
If you need extra money that you wouldn't get from your current structured settlement payment, then opting for a lump sum through a structured settlement sale may be your best bet. Having a large amount of cash on hand gives you an opportunity to take care of old bills, make investments and do a wide variety of other things.
Cashing out of a structured settlement could also be a good thing if you need to borrow a large sum of money to buy a new home or another major asset. Selling structured settlement payments may be a better option to someone with bad or nonexistent credit than dealing with a bank and being turned down. Just be wary of the temptation that comes with handling large payouts like a structured settlement.
Reasons You Shouldn't Sell
One major disadvantage to selling your structured settlement is that you'll likely end up getting less through a lump sum payout than you would receive through a steady stream of payments. This largely depends on the discount rate offered by the buyout firm. For example, cashing out on a 10-year, $1,000 per month structured settlement at a discount rate of 5 percent leaves roughly $94,500 – a far cry from the $120,000 you'd otherwise get.
Another disadvantage is the potential to lose out on tax breaks. According to Internal Revenue Code (IRC Section 104 (a)(2), structured settlement payments received for personal injuries or illness are exempt from federal income taxes. However, the lump sum gained from the sale may be subject to taxation. In addition, most efforts to invest the lump sum into stocks or an interest-bearing account could result in taxation of the proceeds.
Also, it's important to note that some insurance companies frown upon the sale of structured settlements. As a result, these companies may make it difficult or even impossible to assign or transfer annuities to third parties. There may also be state regulations and restrictions to keep in mind when considering a structured settlement sale.
With these facts in mind, you'll have a better chance to make an informed decision about your what to do with your structured settlement. Before you make your final decision, be sure to research the buyer's firm and find out about its track record. Only clean and reputable companies should be considered in your settlement buyout short list. For more information on selling your structured settlement, try visiting http://www.mylumpsum.com.
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