Securing A Lump Sum Payment For Your Structured Settlement

Tens of thousands of Americans get structured settlements of injury claims. A structured settlement allows the party that caused the injury to pay out the settlement over time, much the same way you pay for your house over time. Most of these annuities are, on the side of the payer, structured so that a third party manages the revenue stream. They get money in, the money is invested in something stable, like Treasure bills and the interest is used to stretch the initial money out over time to meet the full financial obligation.

For most people, that Structured Settlement makes good financial sense. It provides a regular stream of income with which to pay ongoing medical bills, pay for private care facilities, or pay for medicines, all without incurring the overhead of hiring a financial manager. Structured Settlements arose out of Federal legislation in the ‘80s, after a series of scandals erupted when lump sump payments were egregiously mishandled by the financial managers charged with taking care of the beneficiaries.

In addition to the management benefit, another huge benefit of structured payments is that, as they count as income for the year they’re issued, your total tax burden over the life of the payment structure is going to be considerably lower.

The principal drawback of a structured settlement is that it doesn’t give you a lot of capital liquidity. Unless you carefully save every check in an account somewhere, you’re going to get the annual value of that settlement in 12 or 13 checks and sometimes you need more money at one time than that affords you. That’s where structured settlements brokers come into the picture.

A structured settlement broker will give you a single lump sum payment, in return for being the recipient of your annuity. These brokers need to make a profit on the transaction, so you’re going to be getting less than the full amount. A general rule of thumb is that you’ll get an amount equal to the aggregate total of your payments due, times 0.9^Y, where the caret (^) is “raised to the power of” and “Y” is the midpoint of the number of years remaining in the settlement. The more years you have left on the structured settlement, the lower the overall percentage of its total worth you’ll get as the lump sum.

Any lump sum payment is taxable income in the year that you receive it as well; this often takes anywhere from 33% to 60% of the total lump sum right off the top.

With all these circumstances in mind, there are times when, due to lack of credit access or a major medical expense, or some other major life changing expense, it makes sense to do this. If that pertains to your circumstances, you should comparison shop on the web for reliable structured settlement brokers. Get quotes from them, they’ll be asking for your credit history (which is one other variable in the payment structure) and do your research. This is going to cost you large sums of money to do and it’s worth the extra hours to learn all the details you can.

Copyright 2007 Jim Sterling - All Rights Reserved

Joe Jamail: Trial Lawyers & Structured Settlements

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