Structured Settlement Investment Advice

Helpful Structured Settlement Investment Advice

While structured settlements are not necessarily difficult to understand or challenging to buy and sell, there are still many components that need to be understood. We felt it important to provide some sound structured settlement investment advice so any decisions made would be wise. Of course, you can always get advice from a professional in the insurance or financial industry that specializes in all the various factors of a structured settlement but we hope after reading this article that the majority of your questions would be answered. 

The main concept of a structured settlement is a means by which you would be paid money for lawsuits, legal claims, and other monetary rewards. While taking the money out in one lump sum is an alternative to scheduled payments, you would do best by going with the payments for a number of reasons. For instance, with a lump sum payout, you would be securing a loan, which means a fee would be associated that you would pay. This means the amount of the structured settlement would decrease and depending on the company loaning the money, fees could be extremely high. 

Reputable insurance and financial experts would always advise that you avoid taking a lump sum payment not only to avoid paying fees, but also because having a significant amount of available cash could be too tempting. Although you may have the best of intentions, with money on hand you may find that you spend more freely and before long, your entire settlement is gone, leaving you without income from which to pay bills and living expenses. 

Another piece of advice is that if you were going to use a structured settlement as an investment, this would be called a structured annuity. In this case, annuities are sold and managed by insurance companies so when you sell, the process would be handled by that company as an immediate sale or deferred sale. However, until a distribution of the funds is made, the money would remain in the annuity account to avoid being taxed. Sometimes, permission to annuitize the account would be offered, typically when large sums of money are involved. On the other hand, annuitizing the account may be one of the prerequisites of the settlement. 

When the account is annuitized, funds would be put into an annuity and in return, you would be paid scheduled payments. The payments received would be categorized as "period certain" or "life certain". For the period certain type, payments would be provided to you over a specific number of years whereas with the life certain, the payments would be paid to you throughout your life. 

You will find that loans associated with structured settlements also utilize annuities as a means of maintaining and distributing the funds over a certain amount of time, again usually when there is a large amount of money involved. When this happens, there could be several reasons. For starters, if you wanted to take advantage of tax benefits, you could take money out over time instead of in a single payment. Then, as mentioned this would prevent potential risk of using the money too quickly that could put you in a situation of financial devastation. 

Another piece of advice pertaining to structured settlements as an investment is that you need to know about two possible drawbacks. First, with a structured settlement you would be limited to the amount of money since the payments would be set and paid bi-monthly, monthly, or annually. Therefore, you would need to work hard at managing the investment wisely or spending money to have a professional manage the account for you. 

Second, using a structured settlement as an investment means return on investment potential could be limited. As an example, even if you did not need to gain access to the money right away, at some point in the future you may realize that the firm generating the annuity is doing so from money off the lump sum. If this were not taking place, you could make money on your own by investing the structured settlement funds in investment accounts that have a much better return on investment.