Most people are ill-equipped to manage a significantly large amount of money, like that awarded in court cases for wrongful deaths or personal injury. Structured settlements came along as a way to ensure that those who won such cases would actually experience the financial security the case was aimed at achieving.
Settlements increased in popularity when Congress passed the Periodic Payment Settlement act. The legislation encouraged the use of structured settlements in personal injury cases by offering significant tax exemptions for money received in a structured settlement.
Structured settlements are a type of annuity, which means the money is managed through an insurance company. The installments from the annuity issuing insurance company were exempted not only from federal income tax, but state and local income taxes as well.
Emergence of Structured Settlement Purchasing Companies
With an increase in the number of structured settlements, more and more people had special circumstances.
Life happened and individuals scheduled to receive payments were unable to borrow against the settlement income when emergencies came up. In some cases people couldn’t wait for their money to arrive and wanted a way to access the money they knew would come to them eventually.
Enter the secondary annuity market and structure settlement buyers. A secondary market was created when, structured settlement buying companies emerged as a solution to that particular group of settlement owner’s problem.
Settlement buyers offer settlement owners immediate cash in exchange for selling future payments the owner is slated to receive. When a secondary market transaction occurs, instead of getting the future payments, the buyer is the recipient of the payments and the former owner gets a lump sum from the buyer.
A Purchasing Company’s Role in the Selling Process
The process of selling settlement payments is different from the buying company versus the original settlement owner.
From the company’s perspective:
Getting contacted from a client: The process starts by someone who wants to sell reaching out to the settlement buying company.
Calculating the offer: The specialist at the company looks at the discount rate that would be applied in the particular sale.
Explaining the quote to the client: The specialist explains the amount of money that can be given to the settlement owner for the future payments.
Issuing the contract: Once the client agrees, the settlement purchasing company sends the contract out to the client,
Waiting on court approval: The company waits for a judge to sign off on the sale.
Sending money to client: After the judge approves the sale described in the contract, the purchasing company mails or wires the money to the client.
From the client’s perspective:
Deciding if selling works for you: A settlement owner examines their financial situation to determine if selling is in their best interest.
Researching a company: The owner looks around for a structured settlement purchasing company to work with.
Examining your quote: The selected company issues a quote to sell payments that the owner can either accept or reject.
Fill out the paperwork: The owner fills out the paperwork, which typically includes the original settlement agreement and the agreement from the issuing insurance agency.
Going to Court: The owner present the contract to a judge who decides if the sale can go through.
Receiving your money: Once approved, the now-settlement-seller gets the money in a matter of days.
Evaluating a Buying Company
Now that you know you’ll have to deal with a structured settlement buying company in order to get a lump sum for your payments, here’s how to make sure you’re working with the best.
Things you want:
A direct number to talk to a person: If you have questions along the way, make sure you’re working with someone you can depend on to pick up the phone.
Someone with experience: You also want to work with someone with experience working with structured settlements, not just annuities in general.
A written offer that someone takes the time to explain: If someone pressures you to sign something you don’t understand, that’s a red flag that you should look elsewhere.
Things you don’t want:
A firm that charges you for a quote: A structured settlement purchasing company should offer a free, written quote.
A giant national firm that doesn’t have time for you: You should be able to get a hold of the person handling your sale and ask questions at any point.