The Process of Selling Settlements
The process of selling settlement payments is streamlined, especially once you identify an experienced buyer to work with.
- Research and obtain quotes from multiple factoring companies.
- Choose a credible company that has given you the best deal.
- Accept the offer and complete the paperwork.
- The company will arrange for a court date, so a judge can approve your structured settlement sale.
- Following court approval, the order is sent to the insurance company and you’ll receive your money from the buyer.
From beginning to end, the process is typically 1-3 months, largely depending on how quickly the court hearing is scheduled.
Selling a Settlement: Is It Right For You?
Common reasons to sell structured settlement payments include:
Pay medical bills
Pay down high-interest debts
Pay for college education
Make a down payment on a home
Purchase a car
Start a business
Invest for retirement
As an annuitant, the decision to sell your settlement payments is very important and should be made carefully.
Your Sale Options: Full vs. Partial
If you decide to sell your lawsuit settlement, you are not required to sell all payments at once. Instead, you can sell your settlement in part or in full based on your financial needs.
Many people decide to sell only a specific number of their future payments. Doing this means they will resume receiving payments in the future. You can also sell a portion of your payments, so you continue to receive partial monthly payments and also get a lump sum. Lastly, you can sell the entire structured settlement annuity and receive a larger lump sum.
The choice largely depends on your financial needs and goals. A reputable structured settlement company can discuss your needs and offer the right fit for your financial goals. However, make sure to do your own research and consider consulting a financial advisor.
Pros and Cons of Selling Settlements Payments
- Get a lump sum instead of small amounts over the course of months or years.
- Use the cash for your financial goals, like buying a house, paying off debt, or making a major purchase.
- Companies apply a discount rate and fees, which lowers the amount they offer.
- The sale process takes time, often between one and three months.
What is the Discount Rate?
One of the first questions people ask is how much cash they will receive when they sell their settlement. To understand how much money you’ll get, you need to understand the discount rate.
The discount rate is used by the factoring company to determine the present value of your annuity—how much (less other fees) they’ll pay for it. The higher the discount rate, the less you’ll receive. The average discount rate is between 9% and 18%, but it can be higher.
Companies primarily base the discount rate on their expectation of future interest rates.
How to Pick the Right Buyer for Your Structured Settlement
Choosing the best buyer is a key step in selling your structured settlement. The right buyer will make a competitive offer, have an excellent reputation, and provide outstanding customer service. Consider the following criteria when choosing a factoring company:
- The company should be honest, protect your interests, and offer you different sale options to evaluate.
- The company should provide you a free, no obligation quote promptly.
- The company should offer you a competitive discount rate.
- The company should be willing and able to answer questions throughout the process and assist with paperwork.
- The company should never harass or rush you.
How Taxes Work When Selling a Structured Settlement
You do not owe US federal income tax when selling a structured settlement annuity resulting from a personal injury. If you don’t pay taxes on your monthly payments, you likely won’t pay them on the sale either.
Here are some common questions and answers regarding transferring the rights of lawsuit settlements.
Can you sell any type of structured settlement?
Not all structured settlements are assignable, which means they cannot be transferred to another person or entity. If you currently receive monthly payments from an insurance company, they are typically assignable, and you’ll be able to cash out your structured settlement payments. Workers’ compensation and social security payments, however, cannot be sold.
Can I legally sell my structured settlement?
You have the legal right to sell structured settlement payments provided you can demonstrate financial need to the judge. Among other things, the judge would look at your financial obligations, living expenses, and how the sale will affect your financial situation, both in the near-term and long-term.
Where do I sell my payments?
Many companies offer to buy structured settlements. Make sure to research and get quotes from multiple reputable companies before accepting an offer.
Should I sell my structured settlement?
You should carefully consider your financial plans. Remember, you need a valid reason for selling your structured settlement payments. This can be current financial issues or an investment opportunity. For your protection, you’ll stand in front of a judge to present this financial need before your structured settlement sale is approved.
Why is a judge involved?
Laws protect structured settlement holders from rash decisions and unscrupulous buyers. Under these laws, a judge must approve a structured settlement sale. The judge will make sure you have a valid reason for selling and your buyer is offering a fair deal. This only applies to the sale of structured settlement annuities; selling commercial annuities does not require court approval.
Are structured settlements taxable?
No, when structured settlements result from a personal injury, they are not taxable.
How long before I get my money?
The entire sales process typically takes between 1-3 months but can take more as court approval is required. The factoring company should be able to give you a clear timeline. Also, check how long it takes for funds to reach your bank account once the sale is finalized.
What happens if the judge does not approve?
If the judge does not approve your structured settlement sale, this does not mean you cannot sell your settlement payments in the future. You should review the reason for the refusal and address it before you try to sell again.
Do I have to pay interest when I sell my structured settlement payments?
There’s no interest charged on your sale, but the amount of cash you receive is based on the present value of your annuity after applying the discount rate. The discount rate typically ranges between 9% and 18%.
Can I sell a minor’s settlement?
Yes, it is possible to sell a structured settlement on behalf of a minor. However, you must demonstrate that the funds will be used to benefit the child, such as paying for medical expenses.