Many people who have been awarded structured settlements find that their circumstances have changed to a degree that the original award no longer serves them. In a lot of cases, immediate financial support in the shape of a lump sum payment would enable the person to achieve a pressing need or desire (mobility car payment, college fees, home deposit, etc.) yet they are unable to access the money they need because it is locked away inside a structured settlement plan.
In short, a tool designed to give them long-term financial support has instead become a chain around their neck.
The good news is that there are plenty of companies, including New Leaf Structured Settlements, who can unlock that chain by purchasing structured settlements for a lump sum.
If you are somebody who could do with accessing your structured settlement cash early but are skeptical about selling, perhaps your judgement is being affected by a structured settlement myth like the ones covered in this article.
Therefore, the first set of myths we present are those that often prevent structured settlement owners from selling their asset and unlocking their much-needed cash.
Myth 1. Structured settlement buyers are only interested in buying large settlements
When many people think of structured settlements, they envision the payments awarded to plaintiffs in workers’ compensation, personal injury and wrongful death claims. These often involve significant amounts of money as they are designed to provide for expenses such as future medical care, child support and retirement income.
However, there are many other types of cases that can be resolved using structured settlements, even when the sums involved are relatively minor. Some examples include:
- construction defects
- employment dispute/wrongful termination
- environmental claims
- pre-1997 workers’ comp claims
- psychological damage
- punitive damages
- sexual harrassment/discrimination
Even the payment of lottery winnings are sometimes set up as a structured settlement.
Structured settlement buyers will often consider snapping up settlements worth as low as $10,000 so if you were in receipt of a small award, don’t immediately assume no one will be interested in buying it.
Myth 2. Structured settlement owners have to sell all of their settlement at once
Related to the first myth is the notion that selling a structured settlement is an all or nothing deal. This can lead to structured settlement owners losing out on the immediate financial support they need because they think their future security would be jeapordized.
In fact, it is perfectly possible that a seller will agree to purchase only a part of your structured settlement award, giving you the best of both worlds: money now and a safety net for the long-term.
If you are now ready to talk about selling your structured settlement, be careful you don’t fall for the next myth on our list.
Myth 3. A traditional financial planner can best advise structured settlement owners on whether to sell or not
Some people who would otherwise benefit from selling their structured settlements are unfortunately put off by the very person who should have their best interests at heart: their financial planner.
Traditional financial planners are often not up to speed on the structured settlements market and they may harbor their own biases against these instruments. Of course, any advice to give up future security in exchange for immediate support shouldn’t be given lightly but that can lead financial planners to be too conservative and inflexible.
If your financial planner is overly negative, consider getting a second opinion. For example, dedicated structured settlement planners are much more knowledgeable about the industry and better placed to give informed advice.
Myth 4. Selling structured settlements benefits the buyer at the seller’s expense
Linking into the previous myth is the idea that structured settlement buyers are predators, taking advantage of desperate people.
Nothing could be further from the truth. Although some firms are more aggressive in their pursuit of business, this is no different than in any other industry (insurance, windows, automobiles, etc.)
Rather than shunning a whole industry because of a few bad apples, the savvy structured settlement owners will logically weigh up the terms of any deal before making an informed decision.
Besides, the sale of a structured settlement can only be approved by a court and only then when it has been proven that the sale is likely to be in the best interests of the seller. Few other transactions, financial or otherwise, are subject to the same legal scrutiny.
We now look at some myths involving investing in structured settlements.
Myth 5. Structured settlements provide a poor rate of return compared to traditional investments
This stubborn myth often arises from investors looking only at the headline growth rate of a structured settlement. What they fail to take account of is the tax-free status of most structured settlement awards.
As an example, using a tax rate of 25% , a structured settlement of 3% would equate to a pre-tax rate of 4%. A rate of 5% is equivalent to a 6.67% taxed investment. When you bear in mind that states like California, pay a much higher rate of tax than that (over 50% federal and state taxes), the rate of return of a tax-free structured settlement begins to look a lot more attractive.
Although it is true to say that investing in structured settlements will rarely deliver the double digit returns that other investment vehicles offer, the low overheads involved mean that sellers can often offer a good rate of return, especially when you consider the security you get.
This last point leads us nicely into our penultimate myth.
Myth 6 Structured settlements are risky to invest in as they are dependent on market conditions
Structured settlements are often incorrectly catrgorized as high risk investments. In contrast to investments in equities, commodities and property, where prices rise and fall with market conditions, the return rate of structured settlements is guaranteed. Whatever happens in the market, the rate of return will stay the same, making this type of investment perfect for planning purposes.
Structured settlements are often backed by stable reinsurers with huge amounts of capital behind them, adding another layer of safety.
As with any investment, there is a degree of risk but this is mainly to do with a lack of liquidity. Unlike riskier investments, you have to wait for your returns to become due. If you do need to access the cash earlier than this you can only sell the structured settlement on which will erode its value. Another risk is the erosion caused by inflation which affects any long-term investments.
Myth 7. Structured settlements are of no interest if you have an established portfolio
This final myth is often cited by novice investors with unbalanced portfolios. They may have invested in various stocks, shares and funds and feel that they have no need to add in any structured settlements. More experienced investors understand that the long-term, guaranteed income provided by insurance-backed structured settlements are the perfect countermeasure to short-term, liquid assets which are hypersensitive to market fluctuations.
Hopefully, this structured settlement myth buster has put you in a better position for making an informed decision whether you are considering investing in or getting money for structured settlements. If you are interested in selling, please call New Leaf Structured Settlements for a free