Structured settlements are an increasingly popular financial solution for individuals who have received compensation from legal settlements, typically related to personal injury or wrongful death cases. Unlike lump sum payments, structured settlements provide periodic, tax-free payments over an agreed period. However, there are times when recipients may want to purchase their structured settlements for a lump sum, and this process involves careful steps to ensure safety and fairness.
This article dives deep into how to purchase structured settlements safely in the U.S., highlighting key facts, tips, and trusted business practices to protect consumers.
What Is a Structured Settlement?
A structured settlement is a financial arrangement awarded as a result of a legal settlement where the plaintiff receives compensation via scheduled periodic payments, rather than one lump sum. These payments are often guaranteed by an annuity purchased from a life insurance company, ensuring long-term financial security for the recipient.
Structured settlements are favored because payments are typically tax-free and can be customized depending on the claimant’s individual needs, creating a steady income stream over months, years, or even decades. This arrangement helps recipients manage finances carefully, especially in circumstances involving long-term medical care or loss of earning capacity.
Why Do People Purchase Structured Settlements?
While structured settlements offer predictable income, some recipients require immediate access to a lump sum for urgent needs like debt repayment, medical expenses, or investment opportunities. Purchasing structured settlements means selling the rights to future payments to a third-party company in exchange for a discounted lump sum today.
This secondary market for structured settlements allows recipients to convert their future payments into cash, but it comes with a trade-off: the lump sum is generally less than the total of future payments due to discounting by the purchasing company. It’s essential to weigh the financial implications carefully before deciding to sell.
How to Purchase Structured Settlements Safely in the U.S.
Purchasing a structured settlement—whether you are the recipient or an investor—demands caution, research,
and compliance with legal requirements to avoid pitfalls or predatory practices.
1. Work with Reputable, Licensed Companies
Always engage with establish structure settlement purchasing companies—or factoring companies—that are properly license within your state and have strong consumer ratings, such as an A or higher rating from the Better Business Bureau. These companies buy future payment rights and provide a lump sum payment based on a discounted present value of the settlement.
2. Understand the Discount Rate
The discount rate is the percentage deduction from the total future payment amount that factoring companies apply to calculate your lump sum offer. This typically ranges from 9% to 18%. The rate covers the purchaser’s costs, risks, and profits. Receiving multiple quotes from different companies can help find the best offer and safeguard against lowball deals.
3. Court Approval Is Mandatory
U.S. law requires that any transfer or sale of structure settlements must approve a court. This protects sellers from unfair transactions and ensures the sale is in their best interest. The buyer company usually handles filing the necessary petitions, and a judge reviews the transaction—this is a vital legal safeguard against predatory buyers.
4. Avoid Pressure and Hidden Fees
A trustworthy company will provide full transparency about fees, payment timelines, and the legal process. Beware of companies using aggressive sales tactics, unclear fee disclosures, or pressuring quick decisions. Take your time to review contracts thoroughly and consult a financial advisor or attorney specialized in structured settlements — and never hesitate to ask questions.
5. Use Online Calculators to Estimate Value
Several structured settlement calculators are available online to help estimate the lump sum value of your settlement based on your payment schedule and approximate discount rates. These tools offer a starting point to understand what you might expect in a sale. While online calculators are informative,
they shouldn’t substitute professional advice or actual quotes from licensed companies.
Business Listing: Trusted Structured Settlement Purchase Company
When considering where to purchase structure settlements, one highly recommend option is the National Structured Settlement Trade Association (NSSTA). The NSSTA provides a marketplace and directory of reputable,
accredited structured settlement purchasing companies adhering to industry best practices and legal compliance.
Partnering with companies listed on NSSTA or those with top ratings by the Better Business Bureau can significantly reduce risks and provide peace of mind that your transaction follows all necessary legal criteria and ethical standards.
Pros and Cons of Purchasing Structured Settlements
| Pros | Cons |
|---|---|
| Receive lump sum cash immediately | Lump sum is discounted vs. total future value |
| Flexibility to meet urgent financial needs | Potential loss of steady tax-free income stream |
| Avoid long waits for periodic payment schedules | Legal and court approval process can be lengthy |
| Can invest lump sum in other opportunities | Risk of choosing an unreliable purchaser |
Final Thoughts
Purchasing structured settlements can provide valuable immediate cash but requires careful navigation of a complex legal and financial landscape. Consumers in the U.S. must prioritize working with reputable, licensed companies following state and federal laws,
including mandatory court approvals. Utilizing calculators, comparing offers carefully, avoiding coercion,
and consulting financial experts are essential best practices to ensure a safe and beneficial transaction.
Before proceeding, educate yourself thoroughly and engage trusted professionals to protect your financial future.
