The sale of a structured settlements has its advantages and disadvantages.
The option to sell structured settlements for cash must not be taken lightly. These periodic payments could be funds you have become dependent on to some extent, and selling will stop those payments. But if you need a large amount of cash to fund an investment that will change your life for the better, selling all or part of your structured settlement may be more useful to you than hanging on to the periodic payments.
So before selling a structured settlement, weigh the transaction’s pros against its cons first to make sure that what you’re losing is expendable when compared to what you’re gaining.
ADVANTAGES:
• Liquidity. A structured settlement limits the liquidity of the settlement money that you are entitled to, whereas cashing in a portion or all of a structured settlement frees that money for immediate use.
• Value. You can capture the current value of the money that you’re owed. Because structured settlement payments are equal each month, the effects of inflation decrease the real value of your money over time.
• You don’t have to wait for credit approval. Although you may need to validate your reasoning for cashing a structured settlement, you can’t be denied your settlement because of a bad reference or credit history.
• Relatively quick payment. Compared to applying for a loan, structured settlement factoring is a faster way to get cash, taking as little as three weeks.
DISADVANTAGES:
• Structured settlements and annuities are sold at a discount, which means that the lump sum you get through the sale is less than what you would have received had you continued to accept periodic payments.
• Low regulatory involvement. Structured settlement buyers belong to an industry that is currently unregulated. Unscrupulous companies and individuals exploit this fact by engaging in unethical business practices.
• Taxes. You’ll be charged an excise tax that can be as high as 40% if you choose to cash a settlement for an invalid reason. You will also incur liability for state and federal taxes on your lump sum.
• Legal aspects. Structured settlement factoring is a long process that has exhausted many people who have tried it. There is a lot of red tape to pass through before the money will be seen, and some settlements legally cannot be sold.
