The Settlement Alliance

Here’s Why You Shouldn’t Sell a Structured Settlement For Cash

Here’s Why You Shouldn’t Sell a Structured Settlement For Cash

Jan 6, 2017

Structured settlements are a great tool for preserving your settlement recovery and taking advantage of important tax benefits. Unfortunately, if your structured settlement isn’t planned properly up front—taking into account future medical needs, additional income to make up for lost wages, and lump sums for big-ticket items like a home purchase or a college education—you may have a plan that doesn’t actually work for you. That’s where factoring companies sneak in with promises of “helping” you by purchasing your structured settlement for cash.

What is a factoring company?

If you’ve ever watched daytime or late-night television, you’ve probably seen the commercials promising you “cash now!” for your structured settlement. The commercials show a variety of characters, singing the glories of the factoring company and showing happy customers with cash in hand.

Companies like these—factoring companies—spend an enormous amount of time tracking down people who have placed settlement funds in structured settlements. If you have a court-approved settlement, there is a good likelihood that a factoring company has pulled your court records in an attempt to offer you cash for your structured settlement. The people who work for these companies are well-trained in tactics that make it seem like a great idea to sell your structured settlement payments.

What happens when you sell a structured settlement?

Here’s the catch: the factoring companies aren’t there to help you. They are there to make money. They often charge huge fees, so when they tell you that they’ll pay cash for your structured settlement, what they actually mean is that they will pay you SOME cash for your structured settlement. The lump sum cash payment you get will be deeply discounted.

Not only does the factoring company make money off of you by paying you a fraction of what your structured settlement is worth, but then it collects the structured settlement payments you were originally scheduled to receive and may repackage income to sell as an annuity to another customer.

Are there laws protecting annuitants from factoring companies?

Laws governing the factoring process can vary from state to state. In most states, the annuitant (the person who originally received the structured settlement payments) has to petition the court to explain why the cash is needed now. Most states don’t require the annuitant to appear before the court; instead, they only have to submit an affidavit explaining why they want to assign their structured settlement to a factoring company.

Prevent the need to sell your structured settlement payments

None of us know exactly what the future will hold. That being said, an experienced settlement planner can help you think through your future expenses and will customize a settlement plan that works for you. That might mean taking some cash up front and putting the rest into a structured settlement annuity that will pay you monthly, bi-annually, or annually. You might decide to receive some of the structured settlement payment in a few bigger future lump sums to help pay for college or a house. Whatever the case may be, work with an expert who will get you the best rates and who will help you create a plan that you won’t need to undo in the future. To learn more, contact The Settlement Alliance today.

We are proud to partner with the highest rated structured settlement providers in the industry:

  • American general Life Companies
  • Berkshire Hathaway Structured Settlements
  • MetLife
  • Mutual of Omaha
  • New York Life
  • Pacific Life
  • Prudential