Structured settlements are often used as an alternative to lump sum payments in the settlement of personal injury tort lawsuits. A structured settlement is often offered to a claimant to settle a lawsuit with a defendant or an insurance agency. In the agreement, the defendant offers a series of payments over a specific time to the claimant. In return, the claimant dismisses the lawsuit. To fund the obligation, the defendant purchases an annuity and assigns the rights of collecting payments over to the claimant. This allows the claimant to receive periodic payments from the annuity. The annuity is most often purchased through a life insurance company.
Recipients of structured settlements might find themselves in a short-term cash flow crisis, where they need money in the short-term. The solution to this financial crisis is to enter into a structured settlement factoring transaction. Basically, this form of transaction allows the recipient of a structured settlement to transfer the rights to receive future payments to a buyer. In return, the seller will receive a lump sum of money for transferring their settlement rights to the buyer. In this transaction, the buyer will have the right to receive all future payments from the annuity. The seller will forfeit all rights in return for a sum of money. It’s important to note that the seller can sell all or just some of the future payments of their structured settlement. The sale is often determined by the amount of short-term cash the seller needs to ease a short-term cash flow problem.
The transparency of structured settlement factoring transactions has become clearer with the passing of the State Structured Settlement Protection Act of 2000. This legislation was enacted to help protect individuals entering a transaction involving a structured settlement. The bill requires that the factoring companies make full disclosures to the recipients as well as a judge’s approval on the sale of a structured settlement. This legislation requires full disclosure of all fees to be charged in the event of a breach of the transaction. It’s important to note that companies that do not get court approval for the purchase of structured settlements will face a punitive exercise tax through the Internal Revenue Service.
For those who are interested in selling or buying structured settlements, it’s best to go through a company that specializes in brokering structured settlement factoring transactions. These companies typically provide a marketplace where a seller can receive multiple quotes from different companies interested in buying annuities and structured settlements. Working through a structured settlement factoring company will help the seller get the most money for their settlement.
When selling a structured settlement, it’s often best to sell to the company that is offering the lowest discount rate. The discount rate of the structured settlement annuity is a metric that is used by the buyer to determine the value of the future payments of the annuity. The structured settlement transactions are typically priced using the discount rate. The discount rate used for factoring depends on how many payments are left and the length of time remaining for the payout. That’s why it’s best to get several quotes from several different buyers through a structured settlement company.
