Life is full of changes: why should a structured settlement be forever?

Most homeowners buy houses using 30-year mortgages only to refinance many years before the end of the mortgage term. Consumers sign up for long term life insurance life insurance policies which are intended to be in force for extended periods of time.  But then they stop paying the premium and let their coverage lapse.  Why ?  Because their lives change, their circumstances change.  Maybe they can no longer afford the premiums, or maybe they can get better coverage elsewhere.  The point is that, at the outset, the initial long term commitment made perfect sense, and then as life moved on, a change made more sense.  Each year between 3.5% and 7% of all life insurance policies are allowed to lapse by the insured person (2007 U.S. Individual Life Insurance Persistency Update by LIMRA International and the Society of Actuaries (SOA)).
 
Circumstances change. Lives change. A person who received a structured settlement as compensation for an injury may want to enroll in college or job training and may decide selling structured settlement payments for cash now is the best way to pay for his or her education. Or an annuitant who received a structured settlement as the result of an injury may have the opportunity to buy or renovate a house to better suit his or her way of life. Selling a structured settlement for a lump sum of cash may be a prudent way to cover the down payment on a house. Or to pay off a mortgage. Or to pay off taxes or to pay off credit card debt.
 

Lawsuit awards are a mechanism by which our justice system tries to compensate victims for their damages.  Structured settlements are a tool that helps to customize and maximize an award.  A future stream of guaranteed payments is of great financial and emotional value for plaintiffs when they are feeling their weakest and most vulnerable, because it provides stability and comfort at the time that it is needed most, at the time of the injury.  However, no one has a crystal ball – life changes and circumstances change, whether it is much needed surgery, a new roof on a family home or job re-training to react to new opportunities. And structured settlement payments can be sold for a lump sum of cash to meet these needs.

 
The ability to access a portion of a structured settlement is a benefit that many industry professionals believe adds to the value and benefit of a structured settlement, allowing it to be utilized to the fullest.
 
As a society, we get divorced, even though we were not supposed to be parted until death; we re-finance 30 year mortgages decades before they come due; we commit to life insurance policies and then stop paying the premiums – all in response to changes in our lives.  So, it should not come as a surprise to anyone that recipients of structured settlement payments may need to sell structured settlement payments and cash out part of their payments in order to deal with life’s changes, challenges and opportunities.
 
At the end of the day, if a minority of structured settlement payees sell structured settlement payments in whole or in part, then, for them, the structured settlement is doing what it was set up to do: to provide them with the emotional and financial help when they need it the most.  And for the majority of annuitants who do not sell their structured settlement payments, the structured settlement payments will continue to provide the financial support that was intended at the start.

Published : October 3, 2011

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