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Injured people would get one lump-cash payment when they received settlements many years ago. The money could be used and not available for future expenses. In 1980, another settlement arrangement was established that allowed injured people to receive regular payments over a specified time period or for a lifetime. Structured settlement is a recurring future payment.
Structured settlements are popular because they can be both non-taxable lump cash as well as structured settlement payments. The future payments were guaranteed. This meant that the recipient of the payments would not be able to spend all settlement proceeds. They also didn’t have to manage, invest or oversee large amounts of money and they paid no tax.
There are however some drawbacks. Although the funds appear to be protected, the guarantee is only as good as the financial backers (e.g. First Executive Life, who sold annuities for Structured Settlements, went bankrupt). Structured settlements are inflexible. A structured settlement recipient cannot own the annuity policies that make the regular payments, assign the payments to another person, modify the payment schedule, or accelerate the money. Structured settlement recipients cannot request that payments be increased or that the annuity policies be cashed in. Companies advertised that they would buy structured settlements to provide immediate cash for injured people. Companies don’t explain why the cash payment is at a significant discount. Let me explain.
A structured settlement payout is when a person accepts an initial cash payment in return for regular future payments. Future payments seem better than a lump-sum cash payment because they are more. Inflation means that future money is less valuable. The present value of the structured settlement is the key number. This is the amount that will be required to receive future payments, taking into account inflation and other factors. Inflation means that a hundred thousand dollars per annum received over twenty-years is a two-million dollar payment, but the actual value of the twenty-year payments is significantly less than two million dollars.
A structured settlement is a way to eliminate control and flexibility. A person can’t sell or increase the payment if they have a sudden financial emergency. Companies (factoring firms) can help people in such situations. They use cash to purchase structured settlements. One of the best structured settlement companies is MyStructuredSettlement.net
The injured person authorizes the factoring company for all future payments. The transaction may seem simple, but it is complicated and involves hidden costs. The structured settlement is purchased by the factoring company at a significantly lower price than the current value. They may charge excessive rates or fail to disclose the terms and rates of the transaction.
After the structure has been purchased, the injured party gives a change in address to the company that makes the periodic a payments. The power of attorney is also given to the factoring company for the acceptance of the payments. Selling a structured settlement could be dangerous.
1. Is the cash payment made to an injured person non-taxable? It becomes very expensive if the factoring company pays the injured person as taxable income.
2. Who is responsible if the insurance company stops paying future payments to the factoring company?
3. Was the amount of future payments paid fair and reasonable to the party who was injured?
4. Was the person fully informed about the terms of the contract that was used to purchase their structured payment?
These factoring companies may find it easy to take advantage of people with traumatic brain injuries who are currently receiving structured settlement payments. A person with a brain injury has the right to settle their case. She can accept a lump sum or a structured payment. A person with brain injury can accept a structure and then sell it for cash. A person with a brain injury must be fully aware of all consequences before agreeing to sell a structured settlement. It is important that the person fully understands the terms of the purchase and the financial implications. It is highly recommended that you seek legal counsel and financial advice BEFORE you sell structured settlement. It could end up costing you more than you realize.
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