You’ve probably heard them on the radio, or seen their ads on TV: finance companies eager to purchase structured settlements (or annuity or other stream of scheduled payments which are legally bound in place). In other words, these firms will give the holder of a structured settlement a single lump sum of money for all or part of their payment stream. Why would they want to do that? What is in it for them? In short, they get the same benefits you would, if you were to keep the structured settlement yourself:
- Tax treatment: depending on how the payment stream is structured by the courts, their may be limited or even NO tax liability associated with the scheduled payments.
- Reliable income: companies are just like you – they need money they can count on to keep the doors open. A court ordered income stream is one of the most reliable streams of capital around.
- Healthy return on investment: when a company offers to purchase your structured settlement, they won’t be offering face value of the debt; they’ll pay something less than you would have received if you’d held the settlement through it’s assigned lifetime. For instance, if you have a settlement which will pay you $100,000 over the course of the next ten years, one of these finance companies might offer you something like $80,000 to make the purchase. The gap between the face value and what they pay is where they make their profit.
So you can see that these finance companies have plenty of reason purchase your structured payment stream. But has mentioned, most of these benefits apply to you, as well – so be sure you are willing to forgo those benefits in order to receive that chunk of money right now. One final note: this all assumes that selling your payment stream to a third party is even an option. Many states (about 2/3 of them) have statutes in place which restrict the sale of structured settlements, and there might be federal restrictions affecting you, too. Do your due diligence before you even approach one of these vendors. But if it appears you are able to sell your payment stream, and you REALLY need a large amount of money right now, it is nice to know you have options.