What’s involved when you sell a structured settlement?
If you’ve got a structured settlement and you want to get money for it, take a moment to consider a couple of pretty substantial matters. First of all, it’s very expensive (to you) to sell your structured settlement for money, at least over the long term. Most people don’t realize how much it’s going to hurt them and only focus on what they’ll get with an immediate lump sum payout.
If you do decide to use a structured settlement brokerage company, you’ll need to know a couple of things about the laws regarding this.
If you’re in a lawsuit, some services “offer” you the ability to “sell” your structured settlements to them. In exchange, they provide you with a lump sum of cash in the event you need this type of financial resource.
With structured settlements, you as the beneficiary are paid over a number of years in a series of installments, and the payment terms are not flexible. Usually, you will get your payments in monthly installments, in periodic lump sums, or by a combination of the two.
It’s been estimated that more than 50,000 structured settlements go into the system every year. These settlements give premiums to annuity. What’s important to remember is that these premiums are highly favored in terms of the tax treatment you get, whether you are the claimant or the insurer. In turn, this lowers insurers’ costs.
The price terms usually unfair. Summary accounts show that some sales are completed with a 12 percent or 15.8 percent discount rate, but other sales have been completed with a rate as high as 55, 65, and 75 percent. In addition, since the discount rate is always calculated on the purchase price which includes brokerage and other expenses “agreed” to by the seller in the contract, the real discount rate and cost of the transaction to the seller is artificially depressed. Moreover, there is no requirement to disclose to the seller, in understandable terms, the total costs of the transaction. Given the unfairness of some of the transfer agreements, consumers need protection from factoring companies that take unfair advantage.
A few contend that structured settlements provide crucial financial protection to seriously injured victims, including: protection against premature dissipation of benefits for injured victims; periodic payments tailored to the living and medical needs of the victim and his/her family; and avoiding the shift of responsibility for the victim’s care to the taxpayer-financed social safety net. They contend that there has been a dramatic growth in the number of factoring companies that are purchasing the future structured payments for a sharply discounted lump sum payment, “taking the structure out of structured settlements. This is a transaction that the injured victim enters into with a 3rd party, completely outside of the structured settlement and without knowledge of the other parties.
Industry watchdogs also say that structured settlement factoring businesses that are unscrupulous are also rapidly increasing. One company, in fact, announced that it had undertaken almost 8000 structured settlement purchase transactions totaling $370 million in value. During the first three quarters of 1997, this same company “bought” 3700 structured settlements, and paid $74 million for $163 million in structured settlement payments.
The National Association of Settlement Purchasers (NASP) is composed of companies that purchase deferred payment obligations, including structured settlements. It is a nonprofit. It was formed in July of 1996, and this organization, along with its member companies, support reasonable regulation whereby the rights of consumers who want to sell structured settlement payment rights are still protected. Because of this, the organization has adopted a code of ethics, including consumer suitability of protection standards. It has also implemented a fraud alert system. The organization seeks to provide claimant representatives and claimants themselves with legal, ethical and efficient means by which to obtain liquid funds from inflexible structured settlement schedules. NASP is active in a number of states, and is currently working to pass comprehensive legislation in those states that would protect the interests of personal-injury victims both when the settlement agreement is reached, and in the event the individual or his/her representatives seek to liquidate a portion or all of the structured settlement in the future.
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