As clichéd as the adage – the only thing that’s certain about life is ‘change’ – sounds, its used so often for one reason: because it’s true. Unless you have been infected with the most gigantic wave of inactivity, your life has certainly changed from what it was a year ago.
Unfortunately, this often leaves you struggling to find out whether you have enough financial support now, and for the future, to be able to manage expenses and requirements.
To some extent, a structured settlement annuity can ease your burden. When you know for a fact that you’ll receive periodic payments for a long time, you breathe easier. You hardly need much time to get adjusted to the annuity based money inflows to smartly manage your families and your expenses. Alas, the force called ‘change’ can strike anytime again, leaving you face to face with immediate cash requirements. Such situations are pretty tough to handle, and can end up leaving you with a choice to either hoping for a financial bailout, or selling off your structured settlement payments.
Watch the height before you jump!
Decisions that are as momentous as one of selling off your annuities for immediate cash invariably turn out to be taxing later on if you do not spend enough time on weighing the pros and cons of the same. There are too many short term and long term implications associated with structured settlements, and each of these deserves thorough deliberation on your part before you pull the trigger. It’s a good starting point to consider the different types of structured settlement annuity sales.
There are three major types of structured settlement sales –
Partial sale – Here’s a pretty flexible structured settlement selling scheme. In a partial sale, the seller can dispose of the pending settlements and exchange it for immediate cash which is decided upon after factoring in a discount rate. Also, the seller continues to receive small periodic annuities because of the unsold portion of the settlement annuities. In this manner, one can use the structured settlement annuities for tackling the immediate cash needs without completely losing out on the benefits of periodic payments.
Entire sale – In grave financial crunches, people are often cornered into considering a complete or entire sale of their structured settlement annuities. As is pretty evident from the nomenclature, this sale involves the complete transformation of the annuities into immediate cash as governed by the terms and conditions of the contracts between the seller of the settlements and the buyer.
Lump sum – This is a midway scheme that’s pretty similar to partial selling. In such a scheme of selling structured settlements, the selling party can enjoy periodic large increments of inflowing money in return of lump sum selling of the annuities over a period of time. This means that the selling party has the repeat payment and tax benefits of structured settlements over the period of the contract.
The pros and cons of selling structured settlement annuities
Why sell your annuities?
Clearing off expensive debts – There really is no sense in incurring heavy interest expenses because of your debts, and simultaneously waiting for your slow and steady annuities. When you know that you can manage your expenses with your other income sources, you would ideally want to convert your pending annuities into immediate cash and clear off the outstanding debts.
Inconsequential loss of tax benefits for senior citizens or unemployed beneficiaries of annuities –Another factor that can make it easier for a person to make the decision of selling off structured settlements is that the implications of losing out on the tax benefits are not too severe. Academic research carried out the Center for Retirement Research at Boston College has concluded that tax benefits of structured settlement annuities do not actually translate into anything substantial in terms of savings. Moreover, senior citizens anyways have tax exemptions, which can make it easier for them to go for selling structured settlements.
Enchasing business opportunities with ready capital – One can make the most of risk free business opportunities that come with inherent long term returns by using immediate cash. Selling off structures settlements is indeed a convenient way of doing this. Moreover, the monthly earnings you make from the business down the line will replace the structured settlement annuities that you choose to liquidate.
Why stick to your annuities?
A mathematical financial compromise – When you opt to sell your structured settlement annuities off, the buyer uses a discount rate, which generally varies between 8 to 14%, to find out the current worth of your annuities. It is after the application of this discount rate that the amount to be paid is decided. So, you end up with lesser cash that what would have been the case had you chosen to wait for the annuity payments.
Additional fees of brokers and lawyers – Selling structured settlements is certainly not an easy task, and you would invariably feel the need of brokers in order to find a good deal. However, such a deal would come with the fees of the broker. Moreover, you might need a lawyer to sail you through the legal hassles of implementing a structured settlements annuities sale.
Court approvals – There’s always the risk of hoping in vain, and spending without results when you try to convert you structured settlements into immediate cash by selling them off to a buyer. However, the structured settlements purchasing industry being a heavily regulated one, all such sales have to be routed through a court approval process. And if the deciding authority deems your reasons for trying to sell off your annuities incomprehensive, the court would order you to continue with the annuities.