Frequently Asked Questions about Selling Settlements
FAQ about Selling Structured Settlements and Life Insurance
What are structured settlements?
Who are the potential sellers?
Is it legal to sell my structured settlement?
Can I sell just a portion of the settlement?
How long will it take to get my money?
How much will I receive?
Will I owe taxes on this money?
Does my credit rating have a bearing on a sale?
What states have legislation requiring court orders?
Why would anyone want to sell his or her structured
settlement annuity payments?
How do I receive a quote for the purchase of my
payments?
What are structured settlements?
Structured settlements generally occur when individuals are in involved in accidents or wrongful death settlements with insurance companies and elect to receive a series of payments over a period of time instead of an immediate lump sum award. These payments normally total more than the amount that would have received at settlement, but the settlement requires that the individual have no access to the periodic payments until they become due. When making this election, the injured party must sign a settlement and release agreement that allows the defendant to purchase an annuity policy to provide for the payments to the injured party (the "annuitant"). The annuitant does not own the annuity and does not have the right to sell the annuity. He or she does have the right to receive and to sell the payments to a third party.
Why would someone sell their settlement?
Even though originally accepting the structured settlement and periodic annuity payments made sense when it was first done, sometimes a need for more cash arises. There are many reasons for a person to sell their annuity payments, and generally everyone has a different reason. For example, medical emergencies, loss of job by the injured party or his/her spouse, accumulated debt, buying a home, starting a business, or any financial emergency that can afflict a family could be reason to consider selling. Even though getting a loan would be an alternative, if a person has bad credit that may not be available whereas the sale of the annuity payment (in whole or part) does not rely on having good credit. (See below.)
Is it legal to sell my structured settlement?
Yes. Although your settlement agreement may include anti-assignment or anti-acceleration language, numerous court cases have stated that an annuitant still has the right to assign the payments (even though the annuity itself is not assignable). Since 2002, there there have been numerous state statues passed which regulate the transfer of any payments and may require a court order. Many of these arose as a result of federal tax laws enacted in July of 2002, requiring that any transfer of annuity payments from a structured settlement must be in accordance to an applicable state statute or the purchaser must pay a burdensome excise tax on the total discount. To avoid this hefty tax, buyers will only purchase a structured settlement that qualfies under a state statute. For more information on individual state statutes, please see the wikipedia article references in our Structured Settlement Resources page.
Can I sell less than all of my settlement?
Yes. Generally annuitants should not sell any more of their payments than is necessary. Annuity buyers can purchase specific lump sum payments or a portion of each payment. That allows the annuitant to keep part of his annuity cash flow and not "discounting" all of the proceeds. For example, if a certain amount of money is needed now to satisfy an obligation, then the sale of the structured settlement should be structured to only purchase enough to meet that specific need.
How long will it take to get my money?
This is not a quick process, no matter what anyone else says. Since the purchase requires a mandated court order process it could easily take a minimum of sixty days, and sometimes more. The purchaser generally handles the process of getting court approval, but you must be sure to respond to all rquests for information in a timely manner or the transaction could be delayed even more than usual. Talk with your purchaser up front to determine what will be a reasonable time frame before getting your sale proceeds.
How much will I receive from the sale of my annuity payments?
The amount you are paid for the annuity depends primarly upon three factors:
1) the amount and timing of the payments being assigned. The purchaser will value payments to be received soon at a higher price, than it will value later payments to be received years out.
2) the strength of the issuer and terms of the annuity. The more likely that the issuer will make the payment on time and in the full amount, the more the annuity buyout will be worth to you.
3) the current economic conditions such as interest rates. As interest rates climb, the purchase price will drop. Likewise, if the interest rates are quite low, the purchase price will not be discounted as much for this purchase.
All other factors being equal, you will receive more for payments that will be received sooner than those that will be received several years later.
Will I owe taxes on the money received?
This site does not offer tax advice and you should consult your tax professional. However, as a general matter, a properly structured sale of an annuity should not create a taxable transaction. However, the sale of a life insurance policy in a Life Settlement is likely to result in capital gain, or both capital gain and ordinary income.
What if I' have a lwo credit rating? Will that prevent me from selling my payment stream?
Your credit rating should have no bearing on the transaction, since the purchaser is relying on the strength of the annuity company's ability to pay, not yours. The fact that you may not have good credit should not affect the buyer's decision.
What states now have laws requiring court orders to approve sales of structured settlements?
As of 2007, 46 states had passed laws requiring the court to examine any proposed sale of structured settlements. You can visit the Structured Settlement Resource page to go to the Wikipedia page and get a state-by-state lsiting of the states that have adopted laws pertaining to structured settlements.
Isn't it better to get monthly payments instead of all of the mone at once?
For better or worse, a person’s financial situation rises and falls over time. When the settlement first was made, it seemed like a good solution for the annuitant at that time. A sale of some part of the annuity should be considered when the annuitant's situation requires cash now, instead of later, due to financial hardships or opportunities.
How can I find out what a company will pay for my annuity payments?
Many annuity purchasers have online quote forms, which you can fill out and they will contact you with an initial evaluation. The next step would be to fill out a simple Application and provide copies of the annuity policy, settlement agreement, and any other key documents in your possession. After receiving this information, you can expect a quote in writing as soon as 24-48 hours although the time frame could be longer depending on the overall situation and type of structured settlement.
You need to know the rules. About two-thirds of the states have laws restricting the sale of structured settlements. Federal restrictions also apply to sale of tax-free structured settlements to a third party. Also, some insurance companies write their annuities to limit the assignment or transfer of annuities to third parties, to discourage the sale of structured settlements. As a result, depending upon where you live and the terms of your annuity, you may not be able to sell your settlement.
You should make investigate your options. Companies that buy structured settlements intend to profit from their purchase, and they are experts at this type of transaction. You may get a low offer if you are not careful. By approaching more than one company about possibly selling your settlement, you can get multiple offers to find their highest payoff.
Consider carefully who you are dealing with. Be sure that the company that buys your settlement is established, well-funded, and reputable. You may have to go to court to get a judge to approve the buyout. It is usually a good idea to consult with a lawyer before entering into an agreement to sell your settlement.