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 a structured settlement 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.
Overview Of Structured Settlement For Cash
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 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
Here are the misconceptions about a structured settlement.
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.
Related: Ranking Debt Types From Worst To Best
MY THOUGHTS On Structured Settlement
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!
If you are in need of a personal loan, I'd look at Credible instead. Rates are much lower than credit card interest rates. A structured settlement is a solution, but it seems more complicated than necessary.
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About the Author: Sam began investing his own money ever since he opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $150,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.
im going through peachtree now to get a lump some and i went through a juvinile judge to approve or deny fhe transaction. However he said he didnt feel it was in my best interest because i have spent so much money already in the 6 years ive been purchasing. ive had alot go on in my life i bought a home and the roof fell and i put money into but it kept falling apart some how and he blamed me. He wanted to know where all of it went and qhen i explained he still wasnt satisfied he wanted to know more. I showed him proof that i need it for my son and i or we will lose my home and vehicle and dont currently have a job because i just moved back to ohio. so he told me he will think about it can he deny me my right to my money? especially if imin a financial hole? and can a juvinile judge handle a case like mine?
can you provide me info about structured settlement?
I sold my structured settlement after a car accident in order to help pay for some bills that were piling up. While it is not advisable to everyone to do it, selling you settlement can be an effective tool to take care of bills that require immediate payment. What was everyone else’s experience?
The payment plan for your 100K example would hopefully be agreed upon with the plaintiff, esp if u don’t have the money. They can’t make you pay if you don’t have, or your insurance doesn’t cover. I guess one can go w/ a structured settlement company if one absolutely can’t negotiate.
There are a lot of companies out there who offer to give you quotes, and yes they all vary based on how your annuity is structured. But you need to be careful that you are getting the most amount for you structured settlement, as well as getting the right one-on-one service that you need in order to figure out what will best suit your needs. Sometimes selling your whole settlement will make sense, and in other situations it will not. At Olive Branch Funding we help you and advise you, we will tell you if selling your structured settlement is not in your best interest. Also, some companies will charge or reduce the amount you’ll receive by their fees, which we dont. You can call us at 877-844-5445 or visit our website at http://www.olivebranchfunding.com for a free quote.
The amount of money that we (JG Wentworth) give you is dependent on the amount of your payments and how frequently you receive them. Not the total value of the settlement. Each annuity is different; therefore we look at each annuity on a case by case basis. This is done using its own merits and a purchase plan to fit the customer’s needs. We can provide you with a quote over the phone, with minimal personal information about you and given more details on your annuity. There are no taxes and all quotes come as a net amount to you.
I sold a structured settlement back in 2011 I would like that money back that u made on me how do I do that
Nice Article, i wants to include some more to this…….
Some of these plans are also growth investment plans with assured Lump Sum Annuity in addition to some health coverage plans, etc. Some investment plans include payment of Lump Sum Annuity to the spouse or any other nominee either at the same rate or at a revised rate.
Well working after retirements is an another option if one really wants to earn money or to increase savings.but it also has some pros and cons.working after retirements totally depends upon individual choice or his/her financial status/position.
Let’s take the chow chow example whereby the neighbor who set fire to the prized dog (did he have to go to jail?) has to pay to the owner of the prized chow chow $30,000 a year for the next 10 years and see if we can figure out what the present value. Let’s keep it as simple as possible. For the math wizards you can look up the present value formula in a math book.
So what would the secondary market or a structured settlement buyer http://www.rescuecapital.com offer for that payment stream? If we look at an average rate in the secondary market of say, 16%, the owner of the chow chow would be looking at a lump sum of around $166,000 or about .55 cents on the dollar. Now assume you did not sell to the first company you saw on TV with a catchy tune and you called around to other companies, and you received an offer with a rate (and it’s sometimes called interest rate or discount rate but who cares let’s just call it a rate) of 11%. Now instead of a lump sum of $166,000 you are looking at a lump sum of around $194,000, a difference of about $28,000. But how did we get to that figure and why am I still getting less than dollar for dollar? Here’s a link to an article on the present value of money.
There are many factors that play into determining what a company will buy the payment stream for. Again keeping it fairly simple, some basic considerations are the marketing costs spent to acquire the business, legal and underwriting costs to make sure the payment streams being purchased actually go to the buyer and ultimately charging a rate that will earn the buyer more than his operating cost and borrowing costs and make a profit.
So how much profit is earned? Well, I’d say Caveat emptor. The seller should be aware and call around to obtain multiple offers to ensure he is getting the most he can for the payment stream.
I hope this helps. Craig Davidson @ Rescue Capital
Sam, you are correct. It’s all about the discount rate applied to the future cash stream when evaluating the structured settlement. I’d be concerned with the credit worthiness of the defendant if I’m the Chow Chow owner. If he defaults on a $30,000 payment he might go to jail but I’ll still be making the payments on my new BMW! The credit worthiness of some states that run lotteries might also be questionable today.
Let’s be honest, the lottery is a legal scam the states use to fund the programs for a big portion of people that are playing. Kind of ironic.
I don’t think the lottery system is a scam at all. A scam is a scam if people DON’T know how the system works. People know when they buy a ticket that they have a high % chance of losing money, and a low % chance of winning, so that’s perfectly fine imo.
haha. I think the most I ever won with the lottery was $3. I’d love to win a jackpot but something tells me I’m not going to be that lucky so I rarely play now. I’d definitely be tempted to get a big sum up front but getting free money every month for a set number of years sounds awesome too! lol Never heard of structured settlements myself. There are too many exotic ways to invest out there than I care for. I don’t have the interest or patience to do the research for all that fancy stuff. Nice launch on yakezie.com by the way!
If Jason does this for a living, why doesn’t he give us any quantifiable details?
Like, “You can expect x% of your cash value if you take it all now.” Isn’t this far more crucial than debunking myths that never really existed, like telling us you can invest your settlement cash?
Wait…I have an idea. Maybe because Jason doesn’t want to broadcast that his company will take 30-40% of your winnings?
I think everything has a price. What if you need that $250,000 lump sum upfront, instead of that $2,000/month annuity for the rest of your life to start a business?
What if you think something bad will happen to you in 10 years, and the annuity pays for 30 years. Wouldn’t it be better to get the cash settlement up front now?
Nobody has to do the deal with a structured settlement company. It’s just good to have the option.
I’m curious on pricing too, and Jason said he’d respond to answers.
I’ve actually heard of companies that buy out settlements so the recipient can receive the total sum quicker. I can see where this can be beneficial, if the person is financially responsible and has already mapped out a plan for their settlement money.
However, I always thought a structured settlement repayment was more for the person paying the settlement. For instance, if I ran over my neighbor with my bike and the court decided I owed them $100,000 I’d need to set up a payment plan.
As for winning the lottery, I had a strange dream the other night that I won an odd amount of money, $5.8 million. In my dream I had a panic attack because I needed to hunt down a financial adviser! It was actually quite frightening, and exhilarating all at the same time. If I happen into a windfall, I’ll take the lump sum, thank you! ;)
Lump sum all the way for sure!
The payment plan for your 100K example would hopefully be agreed upon with the plaintiff, esp if u don’t have the money. They can’t make you pay if you don’t have, or your insurance doesn’t cover. I guess one can go w/ a structured settlement company if one absolutely can’t negotiate.
After talking to a buddy of mine that does personal injury work he told me this topic is often brought up during negotations for settlement. So using Sam’s case with the dog. The Homeowner’s insurance company may offer plaintiff’s attorney $200K upfront OR $300K in a structured settlement. It doesn’t have to be only if the insurance the company is out of it…it is usually because of the insurance company
That’s true, but not a $300K payment upfront, but a stream of income over the years that’s VALUED at 300K right?
There are a lot of variables to determine value.
This info is very interesting. I never heard any of this, i hope it would be very useful.
Sam, your lottery example at the end clears things up a bit since it’s generally better to get the money upfront and reinvest.
Maybe Jason can drop by and discuss the Fees his compnay charges for people to get a better idea.
For more info Jason Zweig had an article in the WSJ about this very subject:
https://online.wsj.com/article/SB10001424052748704249004575385140963405252.html?KEYWORDS=structured+settlements
Would you want to buy one?? Hmmm..
There’s a difference between investing in an instrument and using it. Will let Jason answer.
While it may not be the best answer for every particular case, I can see advantages of going this route for some people! Especially those that need the money now, and budding entrepreneurs.
Funny, I never thought about the inflation risk to structured settlements, but that does make sense…
As for knowing someone that gets structured settlement payments, no I can’t think of anyone I know of that has such an arrangement. But then again, most people probably don’t advertise that they are have such a thing…
Thanks Jason for clearing up some of the myths, I was wondering about a few of those myself…
This is an interesting concept which has been around for many years. However, the term “structured settlements” is not often bandied around. The settlement is usually put together by lawyers, and the everyday-joeblow doesn’t get that involved until payout.
People, who receive a large payout, tend to, in most cases, have less within 12 months then before the payout, as they cannot handle the fact that they have money and tend to overspend, such as starting as business, buying too many things, and being able to get extra credit cards and loans because the banks see that they have money to pay them back (however, not for long in most cases).
Getting good financial advice right from the start, and actually adhering to it, is advice that most people receiving large payouts should be given!
The temptation must be crazy strong to spend the windfalls. Still, it wouldn’t make sense to sell that lump sum windfall for future guaranteed payments for X amount of years at a high fee.
However, I guess that’s what a lot of people do with annuities. The key with this structured settlement stuff is cost.
I’ve heard of these before, and they can be useful for some people but not all. Based on what I know, I assume they work like buying an annuity – only backwards. In this case, the settlement company (like JG Wentworth) offers to buy your stream of payments (your “annuity”) for a set amount. They likely determine this number by calculating a present value with an assumed inflation rate, investment rate of return that they can earn, plus some profit for themselves.
That profit they’re taking for themselves is what makes this a bad option unless you really need the money right now. You’re giving up some value in exchange for getting all that money at once. I don’t know what the typical difference is between what JG Wentworth offers and the true present value, but I’m guessing there’s at least a significant difference. Otherwise, why would they want to buy your settlement?
Indeed Paul. Everything is rational, and at the same time, nobody forces the holder of this settlement/lottery win hostage to do anything.
I’m waiting for Jason to tell us the fees…………..
Right, nobody is forcing people to use these types of companies. But I highly doubt that most people understand the math enough to realize what they may be giving up. It’s not as simple as multiplying the annual amount by the number of years you’re going to get it. (That would overstate the value anyway…)
I’d be interested to hear a fee range as well, but I’m not sure we’ll find out. I checked the website, but you have to ask for a quote. “Every situation is unique” – I’m sure. ;)
At the end of the day though, it seems like a “high quality problem” to have… having X amount of money windfall of a stream of a number of years, or a really big #.
Jason, where are you? How much would you give me if I won the lottery and got $100,000 a year for 30 years, and what about the Chow Chow example? lol.