How Does A Structured Settlement Company Work?

Do you have annuity payments that you want to cash in on?  If so, there is a structured settlement company out there waiting for your money.  How do they work and what measures are in place to make sure you aren't getting scammed?  We will look at both of these questions in detail in this hub.

Put simply, structured settlement companies buy your annuity payments from you for a lump sum of cash that is usually 10-20% less than what the total annuity is worth.  The structured settlements company can buy all or some of the payments that are due to you.  Luckily, as a consumer, state governments closely monitor and approve all annuity buyouts-but they are not legal in all states.  The help of a financial advisor would be extremely helpful for navigating all of the legal hoops you and the structured settlement company have to jump through for you to get paid.  Whether you have an insurance company structured settlement, life insurance company structured settlement, or lottery winnings the process is pretty much the same.

Let's take a look at what to expect from a structured settlement company and how state government affects the transaction.

Image courtesy of Yomanimus via Flickr.
Image courtesy of Yomanimus via Flickr.

Structured Settlement Basics

Every state has different laws that pertain to structured settlements, so you must work with a local financial advisor or settlement company to work within your states legislation. Aside from that, there are some common denominators in the structured settlement company business.

For examples sake lets assume that you are owed $1,000,000 to be paid over the next 100 months. A reputable structured settlement company could buy all of the payments from you for anywhere between $800-900,000, or they could buy some of the payments and allow you to get paid on the rest. The large payout will give you a ton of cash upfront, but you will be on your own to manage that money in the future. The partial buyout will give you a chunk of cash upfront and allow you to still get annuity payments in the future. Either choice will have to be worked out with a judge (more on that below) and approved by him/her.

Before signing your annuity payments away, put serious thought into how much of it you want to sell (if any). This can have a serious long-term affect on your financial situation for the rest of your life. The ideal time to sell your annuity to a structured settlement company is when you can invest that money back into something that will be more profitable than the fee that you pay. Carefully consider the risk of that investment, since there is minimal risk in an annuity payment.

Government Involvement

In most states, a structured settlement buyout has to be approved by a judge.  This is great for you because it's the judge's job to make sure that you aren't getting ripped off by the structured settlement company.  If the judge does not approve the transaction, it is usually the company's responsibility to revise the plan to make it fair enough for approval.  Before going in to this, be sure you have a plan for the cash that you want to receive.  Most judges will pay attention to this to make sure that you aren't going to just piss the money away.  Many times, a judge will not approve a full buyout, but will approve a partial.  This lowers the risk for both you and the buyout company.

Benefits of Structured Settlements

Other Things to Note

The longer your term of annuity, the less they will pay you for it.  This is true for a few reasons; it takes them longer to see all of the money (duh) and inflation lowers the total value of the annuity.  Since the settlement company has to turn a profit and protect their own assets, they will reduce the total offered to you to cover that amount.
Also, research multiple structured settlement companies.  They all have different terms and experience dealing with your state's legislature.  Use the same tactics for choosing your company that you would a lawyer or dog-walker.  Ask for contactable references, and ask them lots of questions about their experience.  If you don't feel you are getting the right answers, or it doesn't feel like they are being honest with you, walk away.  If you aren't comfortable with them in the initial dealings, you certainly aren't going to be comfortable signing away millions of dollars over to them.


Research Analyst profile image

Research Analyst 7 years ago

This is interesting about how the longer your term annuity the less you will get paid for it, but like you mentioned it is all about turning a profit.

Grape49 5 years ago

why is it interesting?? If you have 100.00 in hand today; will that same 100.00 buy you less in 5 years or 10 years?

Tiffany 4 years ago

I work for a structured settlement company. And its all about knowing what you have and what you need. Also get quotes from other companies as well. You don't have to sell your settlement payments. Too often people wait until the really need the payments or take those payments for grant to blow the money. Visit us at to learn more.

SecureHorizon profile image

SecureHorizon 24 months ago from Rockville, MD

I agree that research needs to be completed before any payments are sold. For an annuitant to sell their settlement or part of it, a valid reason must be presented to the court. The right company will help present the annuitant's plan for the money, calculate the fair market value of the payments and walk the annuitant through the entire process with open communication. It's also important to note that some companies take additional processing fees out of the initial quote after the transfer of payments, which can be misleading to annuitants that didn't catch it in the fine print.

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