What Is a Structured Settlement?
If you’ve been in an accident, won or settled a lawsuit, or received a payout from a lottery, you may receive a structured settlement annuity. What this means is that you receive your settlement in monthly payments rather than a single lump sum. A structured annuity can last for a set period of time, 30 years for example, or until the death of the beneficiary.
If you need to pay off debts, have medical bills, or are facing a significant expense, you may want your cash up front. There are many services that buy structured annuities in exchange for a single cash payout. In fact, you may have seen a commercial or even been contacted by one of these companies since they market their services aggressively. Many brokers will offer different types of structured settlement loans as well. In these situations, you can borrow cash against your structured settlement, just like you can with a loans against any other type asset.
You can sell the entirety of your structured settlement or a portion of it. Many factors affect the amount you’ll ultimately receive, including the total amount of the settlement you’re selling, the number of payments you’re selling and how often these payments are made.
The process for selling a structured settlement is lengthy and needs to be approved by a court. Usually it takes between two to three months to complete a sale.
Best Structured Settlement Brokers for Partial Cash Payouts
J.G Wentworth is one of the largest structured settlement buyers. (It also owns Peachtree Financial, another large and well-known brand.) If you have an annuity from a legal settlement, accident or lottery award, J.G. Wentworth can purchase a portion of your settlement. The advantage of this is that you can leverage your settlement in multiple ways, preserving future monthly payments while getting some short-term cash.
J.G. Wentworth is one of the largest buyers of structured settlements. It offers a variety of financial services, including prepaid cards, personal loans and mortgages. (It also owns Peachtree Financial, another buyer of structured settlements.
If you’ve won a lottery and are receiving the payout in monthly installments, you may be able to sell it for a single payout. Woodbridge Structured Funding is a structured settlement company that purchases lottery rewards. However, the state you won the lottery in can determine whether you are eligible to sell a lottery payment. One factor in this company’s favor: Woodbridge offers to match the rate offered by other structured settlement companies to purchase your lottery annuity.
Woodbridge Structured Funding is an investment agency that purchases structured annuities in the form of structured settlements, lottery or casino winnings, or inherited or purchased annuities. It can buy all or part of your annuity. Alternately, you can sell a percentage of each payment. This lets you continue to receive monthly income from your annuity, just less each month in exchange for a lump sum up front.
Best for Quick Payments
Typically it takes months to receive payouts from selling your structured settlements. Some companies claim to accelerate the process. Strategic Capital is one such company; they have streamlined the process and are capable of delivering payments to you in as little as 18 days. This varies depending on the state you live in and the particular details of your settlement. Strategic Capital is also admirably transparent about the sales process, with a wide variety of articles on its website.
Strategic Capital’s website emphasizes repeatedly that not everyone should sell their structured annuity settlement. It recognizes, however, certain situations where having all or part of a structured annuity immediately might be a better option. Education or sudden illness are two such examples the company cites. Whatever your reasons for cashing out your structured settlement, Strategic Capital can work with you.
How We Selected Our Lineup
Our lineup of 10 structured settlement companies was selected based on several factors, including customer sentiment, company visibility and whether the company belongs to industry groups such as the National Association of Settlement Purchasers (NASP). In order to be a member of NASP, a structured settlement company must abide by a code of ethics, a consumer bill of rights and participate in anti-fraud initiatives. We were not able to evaluate rates and fees, since they depend so much on the specific details of each settlement. In addition to reading our buying guide, check with the settlement companies you’re considering to determine what the exact rates and fees are if you decide to convert all or some of your structured settlement to a lump sum payout.
Based on our research, here are our recommendations for the best structured settlement companies:
What Is the Process for Selling My Annuity?
Selling a structured annuity should not be undertaken lightly. It is a lengthy process that involves a court approving the sale. The entire process takes upwards of several months. The process differs widely depending on the state you live in. Most structured settlement companies will aid you in the process.
If you’re considering selling a structured settlement annuity, you’ll want to follow these important steps:
- First, shop around to find the best quote. Structured settlement companies apply what’s called a discount rate to the future payments you receive, so the lump sum payment is smaller than the total amount of your settlement.
- Second, you’ll need to provide documents to the company you are selling the structured settlement to. This includes the documentation from the insurance company responsible for the annuity, the settlement and release agreement from a lawsuit, and the application for selling the settlement. If you’re divorced or have declared bankruptcy since receiving your annuity, you may need to provide additional documentation.
- Third, depending on the state you live in, you may be required to consult an attorney or a financial advisor before selling your structured annuity. You can find a list of the state-by-state requirements here.
- Fourth, a judge will need to approve the sale of your structured settlement. Further, the judge will take steps to determine whether you understand the terms of the sale. You’ll also need to demonstrate that you have a convincing need to sell your annuity. Most structured settlement sales are approved, but reasons for denial include a failure to demonstrate adequate financial need, improper documentation or a poor discount rate from the company.
Pros and Cons
Pros & Cons of Selling a Structured Settlement
There are benefits and drawbacks to selling your structured settlement. Here are just a few you should consider:
- You get immediate access to your money instead of receiving it monthly over several years.
- The lump sum of your settlement retains the same tax status as your initial settlement. An insurance settlement is tax free, so, too, are the proceeds from selling one.
- You can sell a portion of your settlement without depleting the entire annuity.
- When you sell your structured annuity, you give up future value for present gains. Structured settlement companies take into account the depreciation of future earnings and apply a discount rate to your settlement (more on that below). What this means is for a $100,000 settlement, you can expect to receive anywhere from $30,000 to $50,000.
- It can sometimes take months for the paperwork to be completed and for a judge to approve the sale. If you need money immediately, you may want to look into alternate ways to get it.
- If you rely on your structured settlement to pay bills, selling is unwise. You can compromise your income stream and leave yourself at risk for dire financial consequences.
What Is a Discount Rate?
The discount rate represents the amount the company deducts from the total of your structured settlement. While it may sound like a simple percentage, it is much more complicated than that. The discount rate assumes that a dollar today is worth more than a dollar in the future and applies that principle to the payments you’re selling.
Take the example above of a $100,000 settlement that is sold for between $30,000 and $50,000. This implies a discount rate of 50 percent to 70 percent. But discount rates typically range from eight to 18 percent, and can sometimes be as high as 30 percent.
The math doesn’t seem to add up, and this is because the structured settlement company looks at each payment you sell and applies a different discount rate to each payment depending on how far into the future the payment is. Therefore, next month’s payment has a different discount rate than a payment five years from now.
When you receive a quote from a structured settlement provider, just be aware that it will usually reflect an average of all the discount rates on all the payments you plan to sell rather than it being a certain percentage applied to the total of your structured annuity.
There is a benefit to selling just a portion of your settlement. By selling some of your forthcoming monthly payments, they have a lower discount rate than payments that are further out in the future, which means you’ll be able to get more money and still have access to future payments.
Here are few more things to keep in mind when selling a structured annuity:
- Explore your options. Get multiple quotes from different structured settlement companies. You’re not obligated to go with the first offer you receive.
- Haggle. Once you get an offer, don’t feel like you need to accept it. You can negotiate the rate and try to find a middle ground with the buyer.
- Understand what you’re getting into. Most states require some kind of consultation with an attorney of financial advisor. We recommend taking advantage of that service so you fully understand the impact of selling your annuity.
As mentioned earlier, when you sell your structured settlement, the payout is not taxed. The exception, though, is from lottery winnings, which are taxed, and the funds from selling a lottery annuity are taxed as well. And if you invest the money from your lump-sum payout, earnings from those investments will be taxed.
If you’ve received a structured settlement annuity through a lawsuit, an accident, or winning the lottery, selling it to a structured settlement company can let you take advantage of that money more quickly. We’ve assembled a lineup of the 10 best structured settlement companies so you can explore your options and find the best deal for you. You can read more about these companies and what they offer in our buying guide.