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Structured Settlement Lump Sum - The Opportunity

Updated on June 29, 2009

Hearing that there is a structured settlement lump sum option creates confusion in the minds of many annuity payment recipients, for good reason. Structured settlement annuities are designed to award restitution for damages (or sometimes to award large lottery and casino winnings) based on payments over time to keep insurance companies and payees financially viable. A lump sum of cash was never presented as an opportunity during the structuring phase of the agreement. How is it possible to get a structured settlement lump sum, then?

When The Structured Settlement Lump Sum Becomes An Option

A lump sum payment will not be an option when the repayment is being negotiated if a structured settlement annuity is being used to pay an award or personal injury claim. Once those regular scheduled payments begin, however, a structured settlement lump sum does become a possibility. But it is still not an option that is exercised through the annuity company or payer. It is an option that must be exercised through a third-party investor.

What Is The Structured Settlement Lump Sum Option?

Essentially what the structured settlement lump sum option is, is a sale of some or all future structured settlement annuity payments. An investor or group of investors will buy the structured settlement payment rights and in return will turn over a lump sum of cash. The investor recoups their investment by collecting a number (agreed ahead of time) of annuity payment. This type of transaction is referred to by a few names, including structured settlement transfer, annuity transfer, structured settlement payout, structured settlement buyout, and even by laypersons as a structured settlement loan (although that is a misnomer—an annuity payment transfer is a sale, not a loan, and there is nothing to pay back out of pocket by the seller).

The terms of a structured settlement transfer vary from individual to individual and from deal to deal. The amount of the lump sum payment and number of payments to fulfill the obligation to the investor will be negotiated depending on how much money the seller wants to get—the amount of the lump sum of cash that is paid in the end (taking into account discount rates and processing fees). There are many options in terms of the contract of the sale, including selling just some payments to get access to cash and selling partial payments, up to selling off all remaining structured settlement payments in exchange for one final lump sum of cash.

How To Get A Structured Settlement Lump Sum For A Structured Settlement Annuity?

The process of getting a lump sum of cash for structured settlement payments starts with locating a buyer of structured settlement payments (the aforementioned investor). There are many people and groups who do this because it is a relatively secure and profitable practice from the perspective of the investor. There is benefit to be had for sellers of annuity payments, too, since the opportunity does create access to future cash now and there is no waiting to collect and accumulate funds. Selling structured settlements can be a good way to get a large sum of cash money that can be used now rather than struggling by until those payments can be collected.

Structured settlement sellers should not simply jump at the first opportunity to sell annuity payments, though.  Because there are many different buyers of structured settlements there is competition—that means that buyers will negotiate discount rates and other terms, and work to prove themselves through customer service and other means.  Sellers, therefore, hold more power than they think they do, and owe it to themselves not to be taken by a buyer of structured settlements that is at all discomforting or unwilling to work with the seller to achieve the financial goals that are in their best interest.

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    • rb11 profile image

      rb11 8 years ago from Las Vegas

      This might not be a bad idea if you think the value of the dollar will drop in the future.