In simple terms, a structured settlement is an annuity awarded to a plaintiff due to a personal injury lawsuit settlement.
The goals of the buyer and the seller of structured settlement annuity payments are, for the most part, entirely opposed. But despite the contrast in the reasoning behind buying and selling structured settlement annuity payments, the sale of these payments can help both sides achieve their financial goals whether long or short term.
Life throws us all curve balls, and often times people will find themselves in a precarious financial situation due to unforeseen change of circumstances in their lives. When a situation like this arises, recipients of structured settlement annuity payments may quickly realize the money they are receiving on a monthly or annual basis is not enough to help them solve this problem and will decide to sell their structured settlement annuity payments.
By receiving a lump sum the seller of structured settlement annuity payments can stop the bleeding, and in many cases completely wipe out their current debt that can carry an interest rate often times exceeding 25% or more.
Selling structured settlement annuity payments can not only help solve a current financial crisis, but can also help the seller save thousands of dollars in interest charges and late fees, as the discount rates for structured settlements are substantially below rates charged by credit card companies.
On the other side of this transaction is the investor, who has an entirely different set of goals than the seller. Investors are looking for a better return than what banks or government securities currently offer… with a very low risk of default.
Buying structured settlement annuity payments offers a combination of a much higher return without the requisite risk. The payer is a highly rated major insurance company with an excellent track record of fulfilling its obligations. In investments of this nature, an investor can expect a return of at least 300-400 basis points higher than the return from a comparable term treasury bill.
As you can see, generally the goals for the individuals on each side of a structured settlement transaction couldn’t be more different, however the beauty of this type of transaction is that it brings the two sides together helping each satisfy their needs and fulfill their divergent goals.