Saturday, September 12, 2009

Structured Settlements: Are They Worth Taking a Lump Sum?

You may have seen ads on TV advertising the payment of lump sums for Structured Settlements. So what is a structured settlement?

According to Wikipedia, a Structured Settlement is defined as 'a financial or insurance arrangement, including periodic payments, that a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada and the United States during the 1970s as an alternative to lump sum settlements. Structured settlements are now part of the statutory tort law of several common law countries including Australia, Canada, England and the United States. Although some uniformity exists, each of these countries has its own definitions, rules and standards for structured settlements. Structured settlements may include income tax and spendthrift requirements as well as benefits. Structured settlement payments are sometimes called “periodic payments.” A structured settlement incorporated into a trial judgment is called a “periodic payment judgment." '

What these companies are offering is a large chunk of money in return for them taking over and receiving your monthly or annual payments that you have been receiving from a legal or insurance settlement. These companies may also pay lump sums for other sources of monthly income, such as annuities. The amount they pay is based on a discount of the payments to present value, and the discount rate used for the calculation can run anywhere from 7% to 8% up to 15%. The lower the discount rate, the better the deal for you.

As an example, if you will receive $2,000 month for the next ten years, you might receive anywhere from $124,000 to $172,000. Before going ahead with any such transaction, it should be reviewed carefully by your attorney, accountant, and financial advisor.



LC David said...
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LC David said...

This is the correct definition, Structured Settlements are actually insurance agreements etc.
Insurance settlements