Cash For Structured Settlement

Is it Advisable?

Any arrangement whereby the company or a person pays you a certain amount periodically under a signed contract is called a structured settlement. Going by the above definition, your life insurance policy, your annuity or even your injury claim settlement come under the purview of a settlement.

These days, there are many companies out there which offer money for your settlement. What this means is that you would get a lump sum amount if you sell your settlement. Now, a pertinent question here is why would a person sell something which is giving him the guarantee of regular income throughout his/her life?



The reasons could be many but one of the often found reasons is lack of funds or need for immediate finances. Many people run up a bad debt because of wrong decisions made in life. To pay up such debt, an alternative for them is to take cash for the structured settlement.

But the next pertinent question is whether cash for structured settlement is actually a profitable proposition? Again, there are various factors to decide that.

Different companies have different policies regarding selling these settlements. Some companies clearly define these policies in their terms and conditions while others do so in an ambiguous manner to take advantage at a later stage.

There are also various companies which state that you would only get the initial deposit and not the interest you have paid till date. Such a settlement is totally a loss making proposition and should be avoided at all costs.

Other companies calculate the cash for structured settlement on a pro rata basis which is very profitable compared to the previous scenario although it may not be as profitable as your original structured settlement.

Another issue with selling structured settlements for cash is the tax factor. A structured settlement may be tax deferred which means that you do not have to pay any taxes on the interest until and unless you withdraw the amount. But if you sell a structured settlement, you may have to pay a huge amount in taxes which will further deplete your finances.

Furthermore, there may be a lot of legal tangles involved in cash for structured settlement scenario. These legal tangles could have an impact on the total payouts you get from selling your settlement.

The moral of the story- always read the terms and conditions of your settlement carefully to avoid getting duped. But most of the times, understanding the financial jargon is not an easy task for a lay man. And that is where the need for advice comes in.

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