What is a Structured Settlement and should I sell it?

So what is a structured settlement and should I sell it? The definition is a legal settlement paid out as an annuity rather than in a lump sum, usually with certain tax advantages for the recipient and a savings for the payer. Who are the recipients of a structured settlement usually?

Well, first off there is personal injury. Structured settlements from a personal injury case is usually from a jury awarding a large sum of money to the plaintiff or the plaintiff and defendant settle out of court for a set amount of money to be paid over a certain length of time. An example of this would be a slip and fall at your local big box store, providing you can prove that your fall and injury could have been prevented by the store. Another example might be an automotive accident involving a drunk driver who plowed into you and caused serious harm.

Then there is wrongful death. Wrongful death claims happen when a family member is killed through the negligence of another party and then the plaintiffs sue for X amount of money to compensate for their loss. A classic example of this would be an airplane crashes due to a faulty part on the plane. The plaintiffs would sue both the airline company and the manufacturer of the plane and part. These payments, when the case is won or settled, are paid through a structured settlement, which is generally tax free.

Worker’s compensation is another possible reason to be awarded a structured settlement from a judge. Let’s say you get hurt at work and it is proven through the courts that your injury is the result of wrong doing or neglect on the part of your employer. You can be awarded a settlement to help pay for the time missed from work and for doctors and hospital bills.

All of these structured settlement examples unfortunately are the result of something bad happening to you or a member of your family but there is another life event that often results in a structured settlement or payment in this case. It is winning the lottery. Lotto winners are often given the choice of receiving a lump sum or receiving structured payments over the course of many years.

Generally it is advisable to not sell your structured settlement but there are companies out there who do buy structured settlements in exchange for a buyer’s fee and lump sum payment to the holder of the settlement. J.G. Wentworth is probably the largest buyer of structured settlements in the country.

Companies often advertise on television to make that phone call now to get your lump sum but in reality, that is just the beginning of the process. In an effort to stop predatory companies from taking advantage of the settlement owner, most states require the matter to go before a judge. The court will take a look at your reasons for selling the structured settlement and the terms the buying company is offering. Generally there needs to be some financial problems and difficulties in the settlement owner’s life, just wanting to buy a new car or house with a lump sum is not sufficient for the judge to grant the sale.

So, why would you want to sell your structured settlement? One reason is during the recession, many people were searching for cash and liquidity to stay afloat. Let’s say they were receiving $1000 a month from their settlement and their job was producing $2000 dollars a month to give them a total of $3000 a month income. The recession hits and they got laid off from their job, now there is only $1000 dollars coming in a month and the bills are soon piling up. Before they know it, they are getting calls from collection agencies and they are in over their head. This would be a valid reason for a judge to approve the sale of a structured settlement to a company like JG Wentworth.

Should you sell your structured settlement or tough it out? Ultimately, that is only a question the holder can answer but many financial advisors advise against the sale if at all possible. However, sometimes people need to do what they need to do to take care of their families now, not 20 years down the road.

When all is said and done, the one thing you should do is research. Talk with a personal financial advisor if possible. Weigh all the options and make the best decision you can make with the information you have available to you.