Insurance

When a plaintiff is awarded an out-of-court settlement, there are two ways that the defendant can pay it: as a lump sum or a structured settlement, which is basically an installment plan that can be arranged in a number of ways. It's possible to set up the structure so that a large portion is paid up front, followed by a schedule of smaller payments. A uniform set of small payments can be made on a yearly schedule, or a set of large payments can be scheduled to occur every few years. Insurance companies often establish structured settlements by purchasing annuities that make sure regular payments are disbursed to the claimant.

One of the main reasons plaintiffs will consider structured insurance settlements is that they're tax-free, though there may be federal restrictions on this tax break of the structure is purchased by a third party. Another reason is that the recipients may know that they lack the fiscal self-discipline to leave a lump sum alone. By having a settlement award distributed over recurring payments, recipients can't overextend themselves beyond each payment period.

However, there are disadvantages to structured settlements that may require selling them. If the claimant suddenly wants to make a large purchase, and they're locked into receiving smaller payments, there's no way to go back to a lump sum settlement; so he or she needs to sell the structured settlement.

Settlement buyers will offer a lower amount than the lump sum settlement would have been, but the seller gets access to faster cash than the scheduled payments. While it would have been ideal in many cases to opt for the lump sum settlement in the first place, sometimes sudden large expenses come up that could not have been foreseen. If you're interested in selling your structured settlement, it's important to thoroughly research the companies that buy them, so refer to this list of settlement purchasers.