We mentioned in our last post that buyers of structured settlements participate in an industry that is relatively unregulated. Therefore, you should take special precautions to protect yourself from getting ripped off should you decide to sell your structured settlement. There are plenty of examples of structured settlement buyers that participate in shady or unethical business practices, but the following guidelines should help you to avoid some of the major pitfalls when looking for a buyer.

• First, make sure you have all your paperwork in order. Keeping careful records of everything that has happened since the structured settlement payment was set up will help you and the buyer see eye-to-eye on the value of your annuity. Armed with this knowledge, you can make sure you are receiving a competitive quote.
• A reputable buyer of structured settlement payments will encourage the client to work with a lawyer to review all agreements made before signing over payments.
• The buyer should be able to provide valid references from previous sellers of structured settlements to ensure that the transaction was handled in a fair manner.
• The buyer should be able to walk the seller through the process of selling a structured settlement step by step, and explain what is expected from each party at each step of the process. This information should be obtained up-front before any paperwork is signed.
• Do not be surprised by the discount value of your structured settlement payment. Due to the eroding value of money over time from inflation, and the power of compound interest were that money to be invested, the value of an up-front payment will be much lower than the total value of your settlement payments. As a general rule of thumb, the seller of the structured settlement should expect to receive 50% or less of the total value of the settlement payments in the form of a lump-sum payment.
• With this in mind, do not be afraid to shop around for quotes. The value of lump-sum payments can still vary quite a bit from buyer to buyer. You may wish to use a broker to help you find the most competitive quote from a variety of structured settlement buyers.
• Finally, check with your local Consumer Affairs Office and the Better Business Bureau to see if any complaints have been filed against the buyer. If you use a broker, also check to see if any complaints have been filed against him/her or his/her company. If so, why? Weigh these factors in your decision to choose this buyer or broker.

There are a variety of lenders and institutions willing to buy a structured settlement in exchange for a lump sum cash payment. There are pros and cons to selling your structured settlement, and it is important to understand exactly why you wish to do so and if it makes sense for your particular personal and financial situation.

First, let’s look at the disadvantages of selling a structured settlement payment:

• You will be receiving less money from an up-front settlement payment than you would have received if you had continued to receive structured settlement or annuity payments for the length of their term. There is a discount involved in selling any settlement payment - the fact that structured settlement buyers exist means that they are making money from you.
• You may incur significant state and federal tax liabilities on your up-front payment, whereas your structured settlement payments may be tax-exempt.
• Buyers of structured settlement payments may participate in unethical business practices. The industry is relatively unregulated, and it is important to find a reputable buyer.
• There is a significant amount of paperwork and red tape to go through when selling a structured settlement, and you may not see your lump sum payment for one to three months after the process is initiated.

Now for the advantages:

• There is no credit approval required to get money up front from your structured settlement payments. The fact that you are receiving regular payments eliminates the credit risk from the buyer’s point of view.
• Receiving the lump sum up front gives you an amount of liquidity you would not have had with structured payments or an annuity stream. This may be important to you if you wish to put a significant amount of money down on a home, investment, business venture, etc. You must consider the tradeoffs involved and truly examine whether you feel you will handle the instant access to cash in a responsible manner.
• The discount factor aside, you will receive the value of your money in current dollars. If you feel that you can manage your money in a way that protects against inflation, this could be important. The regular payment values of a structured settlement plan will erode in value over time as inflation is factored in.
• There is always a slight risk that the company providing your structured settlement payment may not survive for the term of the payments, or default on the payment plan. Receiving your money up front removes that risk.
• You may wish to receive your money up front if you feel you will not outlive the term of the structured settlement payments. For example, if you will be receiving structured settlement payments over a span of 20-30 years and the end of the term is outside your projected life expectancy, you may opt for a lump-sum payment to eliminate some unknown factors in your estate planning.

A structured settlement is an arrangement by which a personal injury claim or payment obligation is resolved by providing structured periodic payments to the claimant. These payments may be referred to as “structured settlement payments” or “periodic payments.”

This system was first utilized in the U.S. and Canada in the 1970s as an alternative to lump sum payments. Other common law countries such as England and Australia now incorporate structured settlements into their legal system. The basic foundation of the system is the same across these countries, though it is important to note that each country has its own specific structured settlement definitions, rules, and standards.