If you’ve ever won a lawsuit or settled an injury case, chances are you ended up with something called a “structured settlement.” Instead of a lump sum of cash, you receive a long-term stream of periodic payments designed to provide income over many years.
But what if you need a big chunk of money sooner than that distant payout schedule? That’s where companies that purchase structured settlements come into play. By selling your future payments, you can get upfront cash today – but at a discounted rate.
So, who are these companies buying up structured settlements left and right? And why are some recipients so eager to sell? Let’s take a look…
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
The players in the secondary market
When you sell your settlement’s future payments, you’re tapping into what’s known as the “secondary market” for these income streams. The primary market involves the original settlement between you and the defendant’s insurance company or employer.
In the secondary market, a few key players have emerged as major buyers of structured settlement payment rights:
- Structured settlement purchasers: These specialized companies exist solely to buy and aggregate structured settlement payment streams from recipients. Large outfits like J.G. Wentworth and Peachtree Financial Solutions dominate this space.
- Life insurance companies: Some of the biggest life insurers like Prudential, MetLife, and John Hancock have entire business units dedicated to purchasing settlements and future payments.
- Investment firms: Certain private equity groups, hedge funds, and investment management companies also deploy capital to buy structured settlement income streams as an alternative investment.
These purchasers make their money by offering recipients a lump sum upfront cash payment at a discounted rate compared to the full future value of the settlement payments they acquire. It’s a calculated arbitrage play with potentially big profits.
Why sell your structured settlement?
On the face of it, consistently receiving those structured settlement payments over decades seems ideal. The payments are tax-free income and there to cover your long-term needs. However, a variety of situations can compel recipients to explore cashing out earlier by selling to purchasers in the secondary market. Some of the most common reasons include:
- Emergency cash needs: Sometimes you urgently need a lump sum to cover things like medical bills, mortgage payments, debt repayment or other unexpected costs that periodic payments can’t cover.
- Investing for growth: Others look to get their money upfront so they can invest the lump sum more aggressively for potentially higher long-term returns than just from the settlement payments alone.
- Starting a business: Many entrepreneurs see selling their settlement as a way to access capital needed to start or support their own business venture.
- Buying a home: With a large upfront amount from selling payments, recipients can make a downpayment on a new home that smaller periodic payments wouldn’t allow for.
- Optimizing retirement: Some financial advisors actually recommend using a lump sum to max out retirement accounts or pay off mortgages before structured payments begin in retirement.
Of course, before selling future payments, recipients must get formal legal approval to confirm they understand the transaction. Each state has specific compliance rules and processes around transferring periods of structured settlement rights.
Before you sell…
Here are some key considerations to keep in mind when selling your structured settlement to the secondary market:
- Discount rate: Companies buying structured settlements offer a lump sum that is discounted from the full future value of the payments. Typical discount rates can range from 9-18%. A lower discount rate means getting more cash upfront for selling the payments.
- Fees and costs: Be aware of any fees, costs or commissions charged by the purchasing company or any brokers involved. These cut into how much you actually receive.
- Tax implications: Structured settlement payments are tax-free income. But taking a lump sum could have tax consequences depending on individual situations.
- Get multiple quotes: Shop around and get quotes from multiple purchasing companies to try to get the best possible discount rate offered.
Consider Peachtree
Peachtree can help you get a lump sum by buying your future structured settlement payments. Our goal is to give you more ways to access your money, enabling you to spend it the way you need to.
Selling your payments is a regulated process. We have a lot of experience with these transactions, so we have put together this guide for how the process works and common questions our customers ask.
Every structured settlement is unique, which means every payment sale will be different, but they all have the same basic six steps:
- Call one of our representatives.
- Receive a free, no-obligation quote for the sale of your payments.
- Review and sign the purchase agreement.
- We process the agreement with your insurance company and local court.
- A judge reviews the transaction and, if approved.
- You get your cash.
It’s all part of something we call the Peachtree Promise: our experienced, dedicated representatives listen to your goals and clearly explain your available options. We meet you where you are without judgement and work hard to help you meet your financial goals.*
The money trail
To sum it up, those steady future payments from your structured settlement have become hot commodities for institutional buyers looking to profit from acquiring the income streams.
If you find yourself considering cashing out by selling payments on the secondary market, just be sure you completely understand the fees and discounts involved in exchanging that long-term income for an immediate lump sum. Careful analysis of your specific circumstances can help determine if selling is truly the wisest move.
SOURCES CITED
Nwakanma, R., “Structured Settlement Transfers And Sales: Understanding Your State Laws.” Structured Settlements Law. June 23, 2023.
* Sales of Structured Settlement and Lottery Payments are subject to Court Approval and other conditions which can take 60-90 days to complete. Annuity payment sales are also subject to certain conditions. All transactions are at our sole discretion.
