I witnessed a recent commercial on TV where the announcer asked the audience if they were collecting payments on insurance polices, lottery winnings, or court case settlements. He was selling settlement funding.
What is settlement funding?
Settlement funding happens when a company will purchase your structured settlements. They give you one time, lump sum payment, and you sign over your right to receive the payments. You end up with far less money in the end. You sell buy some of your future payments or all of them.
What are structured settlements?
A structured settlement is when a plaintiff receives a payment from for a specific amount of time, or for the rest of the plaintiff’s life. While the plaintiff may not get the amount owed to him in full, it provides the plaintiff with long-term tax-free payments.
Reasons for using settlement funding:
If you have financial obligations you have to meet right now, you may want to use settlement funding to receive a lump sum payment.
If you don’t feel you have 20 to 30 years left to receive settlement funding you may want a lump sum right away.
Companies offering to purchase settlements say that inflation will cause the value of your payments to shrink so you might as well get a discounted amount now.
You can take your lump sum amount and invest it yourself. Accounts with a 10% interest rate will double every 7.2 years.
Settlement funding removes the chance of your payment being defaulted on.
Reasons for turning down settlement funding:
If settlement companies were not making a profit buying settlements, settlement funding would not exist.
A long time structured settlement provides security of a guaranteed long-term income.
Congress has amended the federal tax code to make structured settlement exempt from taxes.
Structured settlements are good for people with permanent injuries, children, and wrongful death cases to provide long-term financial support, and people with severe injuries.
Before you decide to sell your long term payments to any company, you need to seek the advice of an attorney. Some unscrupulous settlement funding companies prey upon the poor and uneducated and purchase their future payments for an unfair amount. I once had a relative sell a monthly insurance payment that was sure to last for 15 years. Sure, the payment was for only 150.00 a month, but this person was paid less than year’s value. The purchaser of the insurer made off like a bandit.