(Guest Post)
Structured settlements or structured annuities are investment instruments that are used to pay off lottery winnings, lawsuit cases, or any type of award. The annuity is designed to payout monthly or annually over a specified amount of time in place of the alternative of paying a lump sum of cash. There are specific reasons why individuals that have been awarded this type of investment instrument would desire to take a structured settlement instead of receiving a payment of one lump sum.
An Annuity
Annuity or insurance companies sell a specific structured instrument to all different types of entities including defendants in a case, or lottery officials paying off winnings. The annuity that is drawn can either be deferred (paid out at a later date) or immediately (payments begin right away). Any of the money that is used to purchase the annuity continues to be sheltered away from federal, state and local taxes until the money is paid out.
In situations that involve large settlements, the annuitant might be provided the opportunity to annuitize the policy. When this happens, a payment schedule will be created in one or two fashions. It can either be designed to payout over a specific amount of time, where the entire amount will still be paid whether or not the annuitant survives the entire payout schedule. The other alternative is called a “life certain” policy that pays out a specific amount each month, or year, until the annuitant passes away.
The Structured Settlement
Many individuals elect to have a structured settlement in lieu of a large sum because of tax considerations. It also helps to serve as protection against poor or ineffective cash management, when the individual receives a large sum of cash all at once. Studies indicate that many of these individuals will make big-ticket purchases or financially assist every relative or friend in need that cries on his or her shoulder. In effect, electing to take a structured settlement can assist in preventing an individual from losing all of their finances quickly.
The Disadvantages
There are significant disadvantages when receiving money through a structured settlement. It can significantly limit necessary resources. It does not provide the opportunity to have any access to a large amount of money to make necessary purchases including vehicles or a home. It often makes the annuitant feel extremely trapped in a situation where they cannot control their own destiny.
Selling the Annuity
While it might seem like a great idea at first to elect to take a structured settlement, it may serve in the best interest of the annuitant to sell it. There are reputable companies that offer qualified structured settlement quotes. Working as a third party, they can purchase all the remaining payments at a percentage of its total worth, in exchange for a lump sum to the annuitant.
It is always best to use a financial advisor, when making a decision to sell a structured settlement annuity. At the minimum, it is imperative to obtain at least two or three qualified structured settlement quotes to ensure competitiveness before selecting the best bid.