There’s a whole world out there of financial products I have very little understanding about.  Apparently, there’s a market for buying and selling “structured settlements” for cash after you win big money after a court case.  The following is a guest post by Jason from JG Wentworth which pays people cash now for settlements which are paid over time.  Interesting concept and something which is worth learning about.

When a plaintiff settles a court case and is awarded a large amount of money, it may be decided that the settlement will be paid over time in installments rather than a single lump sum payment.  This type of arrangement is called a “structured settlement”.

The advantage to having a structured settlement is that the money is tax-free if set up properly.  Structured settlements can also be beneficial because they provide a source of income for the recipient well into the future, where as lump sum payments will more likely be spent if the recipient does not manage their money responsibly.

Structured settlement payments can also be a disadvantage, trapping the recipient into periodic payments when they may want cash now.  Many settlement recipients choose to sell their settlement payments for a lump sum of cash to start a business, pay for college tuition, purchase a home or other various financial reasons.

Handling a large lump sum of cash can be exhilarating.  And it can be a little unsettling, too.  Money causes people to worry, and worry spins half-truths or unfounded myths about financial issues at hand. Selling your structured settlement into a lump-sum payment is an opportunity to increase your net worth — not limit it.  All it takes is a little guidance from a reputable structured settlement buyer and a plan of action for your cash to breakthrough any doubts.

Apparently there must be some controversy about structured settlements and Jason is here to help clear the air.

MYTHS ABOUT SELLING A STRUCTURED SETTLEMENT FOR CASH

I have to cash out all of my settlement – NOT TRUE. An experienced structured settlement company is there to figure out your exact cash needs, be it a full payment, partial payment, or a shared payment. Your structured settlement is an important asset and is always managed as such – no matter how much or how little you use of its resources.

I cannot invest any of my structured settlement – NOT TRUE. A home is an investment.  Paying off your debts in order to free up more money for retirement savings is an investment.  Funding a child’s or even your own education is an investment.  Structured settlement cash is an opportunity to use both creativity and wisdom to establish a sound financial future.

This will affect my monthly budget – NOT TRUE. If you are using additional settlement cash to help pay the bills while using your time to earn a higher degree that pays a much higher income; or if you are using a large lump sum to purchase a profitable business; you are creating an opportunity to expand what you bring in each month in a positive way.

I’ll lose a lot of value if I liquidate my settlement – NOT TRUE. In fact, inflation will do the most damage on your structured settlement if you do not allow it to be distributed into one or more lump-sum payments for better-returning investments.  Take a settlement payout and place it in a dependable asset, like a piece of property or business, and watch the value of your cash increase.

It costs a lot to change my settlement to a lump sum – NOT TRUE. It costs far more to take a loan out with a high interest rate or to continue to stay in debt over credit card or medical bills.  A reputable structured settlement company is run a lot like your own finances – very carefully and with concern for a multitude of parties involved.  When you sell a portion of your settlement for cash, a host of financial professionals are able to navigate your financial needs to make sure you understand their number one priority is the exact same as yours: to establish a bright financial future.

MY THOUGHTS

Is it just me, or have you never heard of such a thing before?  Let’s say you are found guilty for setting on fire your neighbor’s prized Chow Chow puppy dog.  The dog so happens to earn his owner $100,000 a year and was expected to live and earn for 3 more years.  The jury decides you’re going to have to pay the owner $300,000 out of your own pocket because you don’t have enough homeowners insurance or an umbrella policy.  Instead, you agree to pay 10 installments of $30,000 a year for the next 10 years.

Meanwhile, the owner of the Chow Chow is thinking he doesn’t want to wait 10 years to collect his $300,000.  He wants the lump sum now.  Unfortunately, you only make $80,000 a year and have $10,000 savings so the most you can pay him is $30,000 a year.  What to do?  I guess you call the guys over at JG Wentworth and see how much they’ll pay for your $300,000 settlement.  Perhaps you can get 80 cents on the dollar, or $240,000 upfront, perhaps not.  I guess it all depends on how desperate you are for the cash up front, and what kind of terms JG Wentworth or other structured settlement for cash firms are willing to give you.

Another scenario I can think of is if you are so lucky as to win the lottery.  Sometimes, you have the option of taking the big winnings in one lump sum.  However, often times, the state only pays you out over a set number of years.  In this case, you can ping a firm such as JG Wentworth to see if you can sell your future lottery winnings at a discount, since it’s all about the present value of money.  It’s important to have assumptions on inflation, investment performance, risk free interest and so forth.  At the end of the day, winning the lottery is a good problem to have!

Readers, ever win a nice settlement before and think about doing a structured settlement?  Know of anybody who has?

Has anybody ever won the lottery greater than the cost of a nice steak dinner for two?

Regards,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”