Receiving a large settlement or payout is often an exciting conclusion to a difficult legal situation or the result of winning a large prize. For many people, a settlement can reduce a lot of financial burden that can come along with being injured. For people who have won a large monetary prize, receiving a financial windfall can be life-changing.
In all of this excitement, however, it pays to take a moment to think about whether a structured payment or a lump sum payout is best. In many cases, once an option is chosen, it can’t be altered, so it’s a big decision.
Lump Sum or Structured Settlement?
A lump sum offer means that you receive all of the money owed to you in one payment, but a structured payment or settlement often means regular payments at predetermined intervals. Both options have benefits, but many people choose to accept a structured payment to portion out large sums of money. This can help with money management and may guarantee income for a long period of time.
What If You Need Cash Now?
One of the pitfalls in accepting a structured payment agreement is that, even though you are owed the funds, you only have access to the amounts due according to the structure agreement. This situation can put you in a financial bind since you likely won’t be able to access additional funds until the next payment date.
As stated earlier, most structured agreements can’t be altered once put into place. Even though you know that you’re owed the money, it’s just out of reach for the moment. Some lending institutions will take this into account if you want to take out a loan against future payments, but this means going into debt and potentially cutting into your funds due to interest.
Selling a Structured Settlement
Thankfully, selling your structured payments or settlement may be an option. When you sell your structured payment, you’re typically able to receive a large portion of your money now instead of waiting for the next payment.
Keep in mind that selling your payment may mean paying fees and accepting a lesser amount than what you would have received if you had waited. Even with this being the case, if you need cash now and waiting for your next payment isn’t optimal, selling your structured payment might be the right choice.
Reasons to Consider Selling Your Structured Payment
If having all of your cash now isn’t enough reason to consider selling your structured settlement, below are five other good reasons to sell your structured payment:
1. Funding Can Pay For Education
A university education is increasingly expensive these days. In fact, the average cost of attending a four-year university in the United States was nearly $30,000 in 2019 for out-of-state students. If higher education is on your mind, it may be beneficial to go ahead and sell your structured settlement.
2. Funding Can Purchase or Pay Off a Home
Housing is a vital aspect of living a comfortable lifestyle. Many people find that purchasing a home is a difficult financial investment or that paying off an existing home would free up a lot of extra money each month. As such, you might consider selling your structured settlement in the event that doing so would allow you to purchase a home or pay off your existing home.
3. Funds Can Serve as Investment Vehicles
Selling your structured settlement may bring in a large amount of money, and this money can be earning more when invested properly. Many people sell structured payments in order to take advantage of hot investment opportunities in the stock market or in business partnerships that may require quick funding.
4. Selling Structured Payments When Needs Change
Not all structured payments are the result of settlements. Some, including annuity plans for retirees, are meant to pay out over time by design; however, your needs may have changed since you first agreed to an annuity plan.
If this is the case, it may be more beneficial to sell your annuity in order to cash out and receive funds now. You’re encouraged to work with a fiduciary to discuss the pros and cons of selling an annuity according to your personal financial needs and goals.
5. Paying Off High-Interest Debt
Most people have some type of debt in their lives, but high-interest debt from credit cards and loans can put a serious damper on your finances. Additionally, outstanding loans can potentially hurt your credit.
If you’re feeling buried beneath a never-ending pile of high-interest debt, it may make more sense to sell your structured payment to get cash now. Paying off your high-interest debt has the ability to give peace of mind and improve your credit score for future purchases.
Understand the Terms
Whether you’re interested in selling a lottery payout, an annuity, a lawsuit settlement or a pension, you need to read and understand the terms of your agreement. In some cases, you may not be eligible to sell the payment per the terms, but in other cases, state laws may prohibit the sale of certain settlements. In any case, you’re encouraged to work with both financial and legal professionals in order to get advice that pertains to your specific needs.
