Structured Cash Settlements
Structured Settlements for Cash
Similar to the lottery situation, a structured settlement provides cash up front in exchange for the
rights to a payment stream. Many times payment streams are established in the form of
annuities, paying out small, regular and scheduled amounts each month for years forward.
Some parties don't want to wait for each payment and would prefer to get a lump sum
immediately. In steps a third party offering, in essence, to buy the rights to the payment stream
in exchange for a cash settlement. To make some profit on the deal, the buyer will offer a cash
settlement that is less in value than the aggregate of the payment stream. This makes the
purchase worthwhile, adjusting for time and inflation.
Sellers looking for a cash settlement on an annuity or similar are not required to just pitch the
sale to one buyer. Structured settlements can be put together a number of different ways. Some
buyers will compete with each other and a savvy seller just needs to wait for whoever offers the
best deal. Additionally, the buyer side can be split between two or more buyers rather than just
having to be one party. From the seller's perspective, all that matters is that the total purchase
amount funded meets his or her target to close the deal.
Cash settlements can also be made on partial payment schedules rather than the entire payment stream. For instance, a party who plans to received $1
million over 20 years can sell off 25 percent of the payment stream for cash up front, say $200,000. This means that for every $1 paid, 25 cents will go
to the buyer rather than the original owner of the payment stream.
Structured settlements frequently involve payouts on annuities set up due to tort or insurance liability judgments or compromises. The payments were
restricted and established over a time period to make sure that the recipient didn't use all the funds at once and they went towards what was claimed:
lost enjoyment of life or living income. Alternatively, some parties chose to purchase annuities and then afterwards had a case of cold feet, deciding they
didn't want to wait 20 years for a return of their funds.
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