If you are due to receive a significant payout due to a personal injury, workers’ compensation claim, wrongful death or product liability case, the financial decisions you make with your attorney will determine your life for many years to come.
Claimants will often be given the choice to take their settlement as a lump sum or to accept a structured settlement. This is an arrangement whereby you will receive the money – in the form of lump sums or regular payments – on a fixed schedule.
So which should you choose?
Why People Struggle with big Payouts
According to the National Structured Settlement Trade Association, only a third of claimants offered a structured settlement actually go that route. The others are presumably confident they can manage a large lump sum of money over the whole course of their lives.
Some of them can but there is a well-known anecdote which says that those who come into money fast tend to lose that money equally quickly.
Although every person and every circumstance is different, evidence indeed shows that those injured people who go on to recover from their injuries struggle to hold on to that money. Evidence from the Rutter Group revealed that 25 to 30% of injured settlement beneficiaries dissipated their lump sum within just two months of recovery. 90% of those beneficiaries had run out of cash within five years.
There are various reasons for this situation. They include listening to bad financial advice; giving overly generous handouts to family and friends; having a lack of financial discipline and having a deficiency of knowledge and wisdom in how to manage significant sums of money in both the short and long term.
Proper planning would need to take into account all future possibilities like providing for college fees and retirement income. It can be very difficult to foresee what your life and financial circumstances will be far into the future which is why setting up a structured settlement is a good way of making sure you will have at least some guaranteed income.
On the other hand, this is also why some people end up struggling to make ends meet. Their circumstances change and the rigid payment schedule of their structured settlement proves to be incompatible with their needs.
Understanding the Advantages of Structured Settlements
Structured settlements provide a way to secure a claimant’s future financial health by creating a contractual obligation for an insurance company to make lump sum and/or periodic payments to a defined schedule. It protects the claimant from inadvertently damaging their future financial wellbeing.
One of the biggest advantages of structured settlements is their tax-deferred status. This fact can often provide greater returns than those suggested by the headline interest rate of investment vehicles such as stocks and shares. The tax due on such accounts compounds over time adding up to a significant sum.
Security is another key benefit of structured settlements. The insurance companies underlying structured settlement annuities are A+ rated and subject to scrutiny over solvency and regular audits. This protects annuitants’ future payments in all but the most severe economic circumstances.
It is important to understand that once your decisions have been made and the structured settlement deal passed into law, it becomes impossible to manage structured settlement money directly. You are tied into the deal unless you decide to sell your structured settlement further down the line (more on that later).
Consequently, a balanced approach is often best with a lump sum taken immediately to cover any large payable sums (for home adaptation, new vehicles, paying medical bills, clearing debt, etc.) and a structured settlement set up for security in the future. People may also want to consider setting some extra money aside for investment into corporate grade bonds, U.S. securities, a no-load mutual fund or some other investment vehicle or selection of vehicles.
The details of this balance are best discussed with an independent financial advisor as all circumstances are unique.
General Budgeting Advice
If you’ve decided to take the secure option of a structured settlement, that doesn’t mean you will necessarily need to struggle while you wait for payments to be due. Learning sound budgeting habits will stand you in good stead for the future.
Budgeting doesn’t have to be as daunting as it sounds, especially with the large number of apps that are available now to help you (Mint, Clarity Money, etc.) There are different budgeting systems out there, including the envelope system, the zero budget and the 50/30/20 budget. There is plenty of information about these online.
A powerful tip if you are due to receive irregular lump sums is to behave as if you never received the extra funds. It is natural to want to loosen the belt when you get an influx of money, especially if you have been living from pay check to pay check, but the danger is that you will overspend and blow the money. Sticking with your chosen budget will help you to keep your day-to-day spending modest, leaving extra money for savings.
Another way to reduce expenditure is to maintain tight control over insurances and utility bills. Insurance companies often reserve their best deals for new customers but if they know you are considering your options they will often be able to cut you some slack. If not, there are plenty of comparison sites out there. Just be sure you are clear on what cover you need. While you’re at it, compare your utility bills (gas, electric, water, etc.) Be particularly careful about rolling onto an expensive tariff when your contract ends.
No matter how good your budgeting, life circumstances can mean that you need to access your structured settlement cash early. As we mentioned above, you do have the option to sell your structured settlement to a settlement buyer like New Leaf Structured Settlements.
Cashing in your Structured Settlement Payments
How do you go about selling your structured settlement? The first step is to speak to your family members and perhaps an independent financial advisor to make sure that your decision is in your best interests. A judge will only allow the sale process to proceed on that basis so it is worth being clear from the start.
Next, you will need to get one or more quotes from structured settlement sellers to find the best deal. New Leaf Structured Settlements guarantee to give you the best deal by at least $1000 so we recommend you call us on 1-800-517-7671 or fill in our form for a fast response.
If you are happy with the quote we give you, our experienced team will go through the sales process with you and the issuing insurance company, assisting you with the necessary paperwork. The final stage of the process will involve approval from a judge which normally requires a face-to-face meeting.
Finalizing the sale can take a number of weeks which is why New Leaf Structured Settlements offers the option of a cash advance which can see funds in your account within a few hours of the agreement being made.
Placing your settlement funds into a structured settlement annuity is one of the best ways to make your money last longer while avoiding the temptation to spend on non-essentials or risky, tax-bearing investments. However, that doesn’t mean you have to put up with hardship should circumstances change. New Leaf Structured Settlements are here to help you liquidize that asset if you ever need to do so.