Selling your structured settlement payments is an important financial decision. A steady income stream is a solid base for long-term financial security. However, sometimes situations arise in which you need a substantial amount of cash up front (e.g. paying for a wedding or placing a down payment on a new home).
Understanding as much about your settlement as possible can help ease the anxiety involved when considering your options. One of the first things you need to know is whether your settlement payments are guaranteed or life contingent – or both.
The good news is that you can sell both guaranteed and life-contingent settlement payments. However, there will be some differences in the process of the sale and value of your settlement depending on which type you own.
What are Guaranteed Structured Settlement Payments?
Often times, when a plaintiff in a lawsuit receives a settlement, the cash settlement is taken in the form of an annuity rather than a lump sum payment.
While a lump sum can be taxable, settlement payments paid through an annuity in the form of a structured settlement are tax-free and do not interfere with your ability to receive other types of aid, as they are designed to replace that stream of income you might have lost.
Types of cases that can result in a structured settlement:
Severe Personal Injury: A structured settlement can replace income that you can no longer receive due to a serious injury that was not your fault.
Wrongful Death: When a court decides that a death of a family member was due to a negligent or wrongful act of another individual, the beneficiaries can be awarded a structured settlement on the deceased’s behalf.
Medical Malpractice: When a lawsuit is brought as a result of an individual suffering serious injuries or death arising from negligent medical care, a structured settlement may be an appropriate resolution of the matter.
When a plaintiff receives a cash settlement as a structured settlement, they might receive guaranteed payments, life contingent payments or both. Life contingent payments are payments that are paid to under an annuity for a specified period of time (for example, 30 years), and will continue throughout this term without interruption or termination. Hence the guarantee—the check will arrive for the whole annuity period regardless of changing circumstances.
If the annuitant dies before the guaranteed term ends, his beneficiaries will receive the remainder of the money at the same amount and interval.
For example, if you receive guaranteed payments in the amount of $1,000 a month for 30 years, but die 20 years into the guaranteed period, your beneficiary will continue to collect monthly payments of $1,000 for the next 10 years.
In the event that your beneficiary also dies before the end of the term is reached, another beneficiary will assume the payments. If you sell your future payments, the purchasing company will receive payments for the entirety of the guaranteed term, regardless of whether or not you outlive the payments.
What are Life Contingent Payments?
As the name suggests, life-contingent payments are paid to the annuitant only so long as she is alive. Annuity policies that pay out structured settlement payments typically pay both guaranteed and life contingent payments.
The life contingent payments will usually begin when the guaranteed period ends. The payments will cease upon the death of the payee.
Whereas guaranteed payments pass to beneficiaries if the annuitant dies during the guaranteed period, life-contingent payments will not be passed on. This also goes for the company that purchases them.
So if you sell your life-contingent payments and die before the payments you sold become due, the purchasing company also loses out as your beneficiaries would.
What is the Value of My Guaranteed Payments?
Guaranteed payments involve relatively low risk for the purchaser, and therefore will retain the most value compared to life contingent payments.
What is the Value of My Life Contingent Payments?
Because it comes with a greater risk to the buyer, and because life contingent payments are further out in the future, you will likely receive less for these payments than you would for guaranteed payments. But that does not necessarily mean it isn’t worth it.
The lump sum a buyer will pay depends on a number of other factors, including the size of your monthly payments, the number of future payments, and when those payments are due.
Another factor that might affect the amount you can receive for your contingent settlement is the buyer’s ability to purchase a life insurance policy on you.
Although the law does not require a buyer to purchase a life-insurance policy on the original beneficiary, some purchasers will wish to do so to protect their investment. You also will need to undergo a medical assessment so the purchaser can assess its risk.
What are My Options for Selling?
When you sell payments, you can sell a portion or all of certain monthly payments, a portion or all of certain lump sum payments, or a combination of any of these. You have a lot of flexibility. A conversation with a SenecaOne account representative can help you determine the best option to suit your specific situation.
Is a Court Appearance Required?
Selling any structured settlement payments will require you to appear in court. This is designed to protect your best interest—the judge will determine whether the buyer is offering you a fair price. She will also likely ask why you are selling your payments. Will you be paying medical bills, covering tuition costs, purchasing a home or funding a business? Having a plan for your funds that will put you in a better position for the future will increase your chances of getting your transfer approved.
The court process is similar for the sale of both guaranteed and life contingent payments, except when purchasing life contingent payments, the buyer will have to agree to establish a process to prove that you are still alive before they can receive any of the life contingent payments they purchased.
The court process is not as scary as it sounds. In fact, it is relatively straightforward, and it’s actually comforting to many annuitants to know that the judge is concerned about their well-being.. SenecaOne will help you prepare for court by reviewing the process with you, step by step.
source : www.senecaone.com