The Step-By-Step Process of a Selling Structured Settlement
Understanding how the process works and what your role is during the sale is important if you’re considering selling your settlement payments.
Deciding to Sell Your Settlement
With so many options for financing available, some people wonder why selling their structured settlement should be considered.
In most cases, the reason someone looks into selling their structured settlement payments is because they have a sudden expense they’re looking for a way to access a large sum of cash to cover it.
Others regret setting up a structured settlement to begin with. If you’re feeling guilty for making there wrong choice originally between the settlement and the lump sum: don’t. Making a serious financial decision amidst the pain of a debilitating injury is challenging.
Reasons for Selling
There are as many reasons for wanting to obtain a structured settlement payout as there are people who seek them out. Some of the most common reasons include the following:
- Purchasing a home
- Buying a car
- Educational expenses
- Paying off debt
- Starting a business
- Medical expenses
- Funeral or end of life expenses
- Unexpected moving expenses
- Vacation costs
An example of the selling process:
- Madison has a structured settlement, paid from an insurance company.
- Madison needs a lump sum now, so she finds a settlement buying company.
- The buying company offers Madison money for a portion of her payments, which a judge then approves.
- The buying company gives Madison money right away in the form of a lump sum payment.
- Madison now receives the payments she did not sell, and the buying company receives the payments she sold.
Exploring your options
Once you’ve decided that it is in your best interest financially to sell, you can start the process by reaching out to a structured settlement buying company. The representative will ask why the settlement was granted, who pays on the settlement, how much the settlement pays per month or per installment, and so on.
After gathering basic information, the representative will discuss the different options available, and go into detail about what the outcome will look like given each option available. It’s this stage of the process where the owner finds out just how much they can expect to receive by cashing out. Deciding how much of the payment stream to sell, how much future payments are worth today, how the sale should be structured, and other details are all wrapped up in this step of the process – all with you making the final call.
How much money can you get for your settlement?
The number of payments, how far in the future the payments are scheduled to pay out, and current economic conditions all play into how much money you can receive.
Together these considerations factor into what the discount rate for your settlement will be. The structured settlement buying company will explain how the discount rate works and what it will look like for your particular situation.
It’s important to understand that you will not get the full price of your settlement. That’s where the discount rate comes in, and it can be as low as 50 percent of the total of your future payments. Typically the offer is around 60 to 80 percent of the value of your original payments. The discount rate is the tradeoff for getting access to your money right now.
Fill Out Paperwork
Next, you fill out the necessary paperwork. Don’t be intimidated: While this process is the most crucial step to complete, your representative will guide you through the entire process.
These are the documents your specialist will need:
- Two forms of identification. We will need two IDs to verify your identity: A photo ID, like a driver’s license or passport, and a non-photo ID, like a birth certificate or a Social Security card.
- Completed Application. Your specialist will provide this two-page document to you.
- Copy of the original Settlement and Release Agreement.
- Copy of your Annuity Policy.
This paperwork is used to collect important information about the settlement type, and to outline the decisions made in the previous step, particularly as they relate to sale structure and payout amount. Your documents will be securely managed and kept confidential throughout the process.
Finally, the paperwork has to be reviewed by a judge. In some cases, the seller of the settlement will have to appear in court. Again, your specialist will walk you through what to expect in this process so you feel prepared and comfortable. However, the necessity of appearing in court depends on the court through which the sale is processed and is determined on an individualized basis.
To do so, the judge will ask a series of questions like:
- Do you understand the transfer agreement?
- Did you have an opportunity to review this transfer with a financial professional not connected to the structured settlement buying company?
- Do you understand that selling payments means you will receive a lump sum less than the total amount of future payments?
- Do you feel comfortable that you shopped around for the best deal?
Selling a settlement is a legal process, so the seeing a judge is crucial in finalizing a legitimate sale. The judge has the final say in whether or not the structured settlement sale can go through.
Judges can and will deny sales if they believe something is wrong. Judges deny selling payments if the seller cannot demonstrate clearly that they have a financial need. They can also deny sales if they believe the seller is getting a bad deal from the structured settlement buying company. There’s no need to be afraid or intimidated by the judge, they’re looking out for your best interest.
The truth is most sales from good companies are approved by judges. After everything passes through the court system, the payment is issued and the sale is complete.
Time and Expectations
Selling a structured settlement in order to receive a cash payout in one lump sum is a highly individualized process. Depending on the type of settlement, the total amount, the payout structure, and other facets of the original structured settlement, the process can vary in length of time from person to person.
A person hoping to sell their structured settlement, in whole or in part, should prepare for their meeting with a financial adviser by collecting all paperwork and documents obtained from the original settlement. The more prepared the seller of the settlement is, the faster the process will go. However, the representative from the structured settlement buying company in charge of the sale will be the best source of information for a customized timeline of the sale process.
Once the paperwork enters the court process and a judge signs off on the sale, funds are usually delivered within three to five business days.