💰 Cashing in on Your Settlement: The Ins and Outs of Getting Paid Now

 

Table of Contents

 

- Introduction

- What is a Settlement?

- Why Sell a Settlement?

- How Selling a Settlement Works

    - Determining the Value of Your Settlement

    - Finding a Settlement Purchaser

    - Negotiating and Finalizing the Sale

- Tips for Getting the Best Price

    - Understand Your Situation

    - Research Settlement Buyers 

    - Negotiate the Best Terms

- What to Do with the Money

    - Pay Down Debt

    - Invest for the Future

    - Improve Your Quality of Life

- Pros of Selling Your Settlement

    - Immediate Lump Sum Payment

    - Avoid Waiting Years for Payouts

    - Reduce Stress and Uncertainty 

- Cons of Selling Your Settlement

    - Lower Total Payout

    - Lost Future Income Stream

    - Tax Implications

- Alternatives to Selling

    - Borrowing Against Settlements

    - Settlement Advances

    - Structured Settlement Annuities

- How to Find the Right Settlement Buyer

    - Research Multiple Companies

    - Check Credentials and Reviews

    - Interview Final Candidates

- Questions to Ask Potential Buyers

- Conclusion

- FAQs

 

Introduction

 

Selling a personal injury or other legal 🤩 settlement can seem like quick and easy money. A lump sum payment now rather than periodic payments over many years is an attractive option for some settlement recipients. However, selling settlements is complex, so it's important to understand the pros and cons to make the best decision for your situation.️

 

What is a Settlement?

 

A settlement is money awarded to an individual from an insurance company, government entity, or other party as compensation, typically after filing a claim or winning a lawsuit related to an accident, injury, medical issue, or other legally recognized harm.

 

Settlements can be provided as:

 

- A one-time lump sum payment

- Multiple payments distributed over an agreed timeframe

- An annuity with scheduled payments over a set number of years

 

Settlements aim to cover expenses like medical bills, lost wages, and pain/suffering resulting from whatever situation warranted the compensation payment.

 

Why Sell a Settlement?

 

There are a few key reasons someone with a pending settlement or settlement annuity payments might want to sell their rights to future payouts:

 

 Immediate Lump Sum

 

Selling can allow faster access to a chunk of settlement money instead of waiting potentially years for scheduled payments. This enables paying pressing bills, debts, expenses without going into debt.

 

 Increased Financial Flexibility 

 

Opting for a lump sum gives freedom over how to use the funds compared to being locked into an annuity schedule. The flexibility aids in achieving financial goals.

 

 Avoiding Uncertainty 

 

Selling provides guaranteed money now instead of betting on receiving future settlement payments. It reduces worries about market dips decreasing annuity installments or companies declaring bankruptcy.

 

How Selling a Settlement Works

 

Selling all or part of a settlement or annuity payments involves working with a dedicated settlement purchaser.

 

Here is the basic process:

 

 Determining the Value of Your Settlement

 

The first step is to receive a valuation from potential buyers interested in purchasing rights to your future settlement payments.

 

Valuations require providing details about:

 

- Your situation resulting in the settlement

- Total settlement amount and payment structure

- Length and frequency of payment schedule

- Applicable discount rates and growth factors

 

With this information, buyers use proprietary valuation models, life expectancy data, and expert experience to estimate your settlement's net present value and make initial offers.

 

 Finding a Settlement Purchaser

 

Once you determine a goal price for selling your settlement, the next step is finding an appropriate purchaser. Settlement buyers are professional companies with years of experience and specialty in this process.

 

Criteria for picking a reputable and reliable settlement purchaser include:

 

- Years in business

- Total number of successfully completed transactions

- Staff and leadership experts in legal settlements

- High ratings and reviews from legal and financial professionals

- Competitive offers and pricing

- Array of customer services like getting best prices, legal consulting, managing court processes for transfers, etc.

 

 Negotiating and Finalizing the Sale 

 

After selecting a settlement purchaser, you can enter negotiations leveraging competing quotes from multiple companies to get your optimal deal. Discuss all aspects like:

 

- Interest rates

- Fees

- Payment options

- Purchase amount percentages

- Contract terms and conditions

- Tax implications

 

The buyer also spends time fully explaining the process for legally transferring settlement rights before finalizing the sale.

 

Tips for Getting the Best Price

 

If your goal is maximizing the money received from selling your settlements, keep these tips in mind:

 

 Understand Your Situation

 

Carefully evaluate the details of your existing or pending settlement before contacting any buyers. Know settlement timeframes, recipients, amounts, structures, and origins.

 

Buyers need this information for accurate valuations. Transparency from the start enables getting the highest initial offers.

 

 Research Settlement Buyers

 

Comparison shop between numerous reputable settlement purchasers. Their valuation algorithms, business costs, and profit margins differ, resulting in a range of offers for buying your settlement payments.

 

More bids competitively position you during price negotiations.

 

 Negotiate the Best Terms 

 

The initial offer likely won't be the maximum a purchaser will pay. Determine what settlement rights percentage and price meets your financial needs then negotiate to get as close as possible.

 

Discuss adjusting interest rates, closing costs, and payment options if needed to reach an optimal deal for you.

 

What to Do with the Money

 

If you sell your legal settlement, it is smart to plan how to responsibly use your newfound lump sum payout.

 

Some top options include:

 

 Pay Down Debt 

 

Eliminating high interest debts like credit cards or personal loans can save thousands in interest costs. Paying off other fixed debts can significantly reduce expenses.

 

 Invest for the Future

 

Hiring a financial advisor to develop a personalized investment strategy creates potential for settlement sale proceeds to grow via stocks, mutual funds, real estate, etc.

 

 Improve Your Quality of Life 

 

Consider indulging in a dream purchase or experience you otherwise couldn't afford. Fund a vacation, car, home renovation, early retirement, medical procedure, or passion project.

 

Just don't overspend on luxury purchases without addressing financial foundations first via other suggestions above. The lump sum will go quickly at that rate!

 

Pros of Selling Your Settlement

 

While the easy cash flow is tempting, weigh the advantages and disadvantages carefully before finalizing a settlement sale:

 

 Immediate Lump Sum Payment

 

The 1 driver for most sellers is quick access to a portion of their settlement money without waiting years while annuity payments slowly materialize. Cash now provides immediate debt relief or investment capital missing when adhering to structured schedules.

 

 Avoid Waiting Years for Payouts

 

If a long-term payment plan spanning decades is in place, an immediate payout brings forward funds that sellers likely assumed were perpetually years away. This acceleration awards financial flexibility at life stages where the money holds more impact potential.

 

 Reduce Stress and Uncertainty  

 

Opting for guaranteed cash now eliminates doubts if those legally bound will make good as promised on years of payments. It also minimizes stress worrying about remaining financially solvent while waiting on distant future settlement installments.

 

Cons of Selling Your Settlement 

 

Despite the obvious positives, several drawbacks of settlement sales need equal air time before deciding:

 

 Lower Total Payout

 

Due to taking payment upfront, buyers attach pricing discounts plus fees lowering your bottom-line total versus collecting the full settlement value over time. You sacrifice a percentage for immediacy.

 

 Lost Future Income Stream 

 

Tied to the above point, selling cuts off rights to structured payments, often designed to support recipients long-term or even span lifetimes. This reliable source of fixed income or cash injections disappears after the sale.

 

 Tax Implications  

 

While initially structured for tax-free status, settlement sales often convert portions taxable as ordinary income claiming money before typical retirement age. This creates an immediate tax obligation reducing net payouts.

 

Alternatives to Selling

 

If sacrificing too much total money gives pause or parting with future payments seems unwise, several middle-ground options exist: 

 

 Borrowing Against Settlements 

 

Rather than selling the entire asset, you can access lump sums borrowing against a portion of the present value of remaining payments. This preserves rights to the income stream while taking on manageable debt.

 

 Settlement Advances

 

Advance funding provides quick access to part of a pending settlement without selling or borrowing against the future asset. The advance is then paid back at an agreed rate once settlement disbursements start flowing.

 

 Structured Settlement Annuities

 

As part of finalizing a settlement, negotiating structured payments aligned with major life expenses (college, house, retirement, etc.) builds in bulk disbursements timed with associated costs. This avoids sales while easing financial burdens as needs arise.  

 

How to Find the Right Settlement Buyer

 

This big decision warrants meticulously vetting potential buyers by: 

 

 Research Multiple Companies

 

Go beyond just a web search. Consult reputable rating sites, financial advisors, settlement planners, lawyers, and court resources for referrals. Run names by your state insurance and banking regulators.

 

 Check Credentials and Reviews

 

Verify longevity in the industry, company principals' expertise, leadership stability, number of clients served, plus satisfaction scores from rating bureaus and organizations like the Better Business Bureau.

 

 Interview Final Candidates 

 

Have an exploratory call with a relationship manager to assess overall professionalism, responsiveness, solicitation approach and pressure, and how well they educate you throughout the process. Pay attention to good vibes indicating a trustworthy business relationship. 

 

Questions to Ask Potential Buyers

 

To start the vetting process, asking smart settlement sale questions is key to determining reputable buyers committed to your best interest:

 

- How many years have you been in business purchasing legal settlements?

- Are you licensed and bonded in my state to buy settlement payments? 

- What settlement structures have you purchased previously?

- What is your process for verifying and valuing my settlement asset?

- What expenses, fees, or commissions do you charge sellers?

- Can you provide seller reviews, testimonials, or portfolio examples?

- Will you provide the purchase offer in writing ahead of any agreement?

- If I want to move forward, what are the next steps in the sales process with your company?

- Do you have financial advisors, legal consultants, or structured settlement pros available for guidance? 

- Outside the purchase amount, what complimentary services do you offer sellers throughout the process?

 

Asking the right questions along with doing comprehensive research protects against settlement scams and ensures you select a buyer that is fully transparent regarding expectations, delivers on promises, and follows strict ethical business practices.

 

Conclusion

 

Selling legal settlements or structured settlement payment streams is a personal financial decision with many factors to weigh carefully. The lump sum cash payout provides exciting opportunities to improve life dramatically but at the cost of forfeiting funds down the road you likely counted on to some degree.

 

Ultimately this choice comes down to your current situation and determining if immediate access to settlement funds now outweighs sticking it out to collect guaranteed income over future years. Either path forward takes prudence selecting professional partners plus resisting rash decisions in the face of flashy advertising or persuasive sales pitches proposing instant solutions.

 

Arm yourself with education and expert perspectives, know your needs and risk tolerance levels, then make the most informed decision possible concerning selling your settlement.

 

FAQs

 

 

What percentage of my settlement can I sell?

 

Most buyers allow selling between 10%-50% of your total structured settlement or pending legal claim value. Factors impacting sale portions include payment timeframe, claimant age/life expectancy, applicable discount rates, and the company's risk tolerance.

 

 

How much money will I get selling my $500,000 settlement?

 

Assuming a $500,000 settlement paying over 30 years and selling 30% to a buyer, the estimated lump sum payout would equal around $108,000, minus any transaction fees the purchaser charges. The exact offer depends on proprietary pricing models reflecting prevailing interest rates.

 

 

How long does the process take to sell my settlement payments?

 

Completing a settlement sale usually takes 2-8 weeks from initial inquiry to funded disbursement. Timelines vary between buyers and depend on verifying settlement details, transfer approvals, and court petition processing (for annuities). Complex cases may span 6+ months.

 

 

What costs or fees will I pay when selling my structured settlement?

 

When selling to an established buyer, expect to pay $1500-$3000 in administrative, underwriting, and closing costs. Attorneys charge around $750+ to petition courts approving annuity transfers. Some states levy transfer taxes too. Reputable buyers disclose all fees upfront. 

 

 

Where can I get free advice about selling my settlement asset?

 

Consult a personal financial advisor, estate attorney, certified public accountant, or structured settlement consultant before finalizing a settlement sale. Many provide hourly consults or simple answers gratis to establish the relationship.

 

 

What happens if I sell my structured settlement then need money later?

 

Without legal settlement payments forthcoming, seek money sources like 401k loans, borrowing against your home through a second mortgage or HELOC, personal short-term loans, and credit cards or lines of credit if necessary. Each option carries fees or interest charges reducing net income.

 

 

Do I have to pay taxes on my lump sum settlement payout?

 

If under retirement age, the IRS treats most of your accelerated settlement payments as ordinary taxable income versus deferred payments qualifying as tax-free personal injury awards. Expect to pay federal/state taxes reducing proceeds around 20%-30% (or more).

 

 

Is selling my settlement payments safe?

 

Established legal settlement purchasers with long track records pose little risk when adhering to mandated processes overseen by settlement administrators, courts, regulators, etc. Check licenses, credentials, and seek specialist advice beforehand when uncertain.

 

 

How do settlement companies calculate how much my payments are worth?

 

Settlement purchasers use actuarial formulas incorporating your age, gender, payment amounts/frequency, length remaining, applicable discount rates, life expectancy averages, and other proprietary data modeling elements to derive net present valuations. The inputs differentiate offer variances between companies.

 

 

What are red flags signaling a settlement buyer I should avoid?

 

Be wary of new or unfamiliar companies without verifiable management teams. Reject guarantees of highest payouts or pressure selling tactics. Any vagueness around processes, qualification criteria, or fees may mask unsavory business practices. If uncertain, trust your intuition - many established reputable buyers exist!