Getting Cash Now From Your Long-Term Structured Settlement Annuity

If you have a structured settlement from a personal injury or other lawsuit, you might be able to "cash-out" the settlement. But cashing out a settlement annuity isn't always easy or wise.

By , Attorney (Tulane University School of Law)

If you have a structured settlement in which you receive your personal injury lawsuit award or settlement over time, you might be able to "cash-out" the settlement. To do this, you sell some or all of your future payments in exchange for getting cash now.

What Is a Structured Settlement?

When you win or settle a personal injury suit, you might have a choice to take your award as a one-time lump sum payment or as a structured settlement, which is a series of smaller payments over a period of years. Many people choose a structured settlement for its tax advantages, to avoid difficulties of managing large sums, or to ensure a stream of income when it's needed most.

Structured settlements are often designed to take into account your future income needs, ongoing medical bills, your income from other sources, and other upcoming financial obligations, like college tuition for your children. Structured settlements can't, however, account for all financial challenges. Although your settlement might pay you $10,000 each year for 30 years, at some time during the payout period, you might want to tap into those future payments to cover a present need.

Cashing Out Your Settlement Annuity

To cash out your settlement annuity, you sell your right to receive certain payments that are due under your settlement agreement. The companies that buy the rights to these payments, and give you cash, are called "factoring companies."

When Will You Get the Money?

The commercials make the process sound quick and easy, but in almost every state you must get approval from a judge to sell your future payments to a factoring company. The review is designed to ensure that the request and the terms of the cash-out are in your best interest. The process, therefore, can take a month or more.

Will the Court Approve Your Request to Cash Out Your Annuity?

When you go before the judge, you'll probably have to justify your request. Using the money to pay medical bills or buy a new car might be acceptable. On the other hand, the judge might think that taking a luxury vacation or investing in your brother-in-law's get-rich-quick scheme is not a good enough reason to sell future payments for less than their value. Even if you need the cash-out to pay ordinary living expenses, a court could be reluctant to approve your request.

How Much Money Can You Get If You Cash Out?

The amount you can cash out of your future settlement payments depends on many factors. These factors can include:

  • your age
  • your health
  • the state in which you live
  • the number and size of the payments you intend to sell
  • the financial health of the company that owns your settlement annuity
  • your reason for wanting the money now
  • your future financial needs, and
  • the difference between the amount of the payment you're selling and the amount you'll receive, also known as the "discount."

Shop Around for the Best Terms

Financial experts will encourage you to shop around and talk with several companies to get the best deal, remembering that the best deal isn't necessarily the one that claims to be the fastest. Instead of relying on television ads, consult with your attorney or a financial planner for referrals to reputable companies. Your financial planner or attorney can also help you run the numbers to evaluate the consequences of selling your future payment stream.

Consider Other Resources First

Finally, consider looking for alternative sources for the cash you need before you commit to selling your settlement. If you have other assets, like a home with equity or a retirement account, it might be more cost-effective for you to borrow against those assets than to cash out a future guaranteed payment. Even personal loans or cash advances on your credit cards are likely to cost less if you're disciplined about paying them timely or using your future settlement installment to retire the debt.

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