Before you sell settlement annuities, you should understand the nature of your settlement. Sure, understanding the details of legal procedures is difficult, and if you have a good lawyer he or she can simplify the process. Yet once the law suit is settled, a different set of knowledge is required – understanding the award. Get in the know – be informed about your settlement – and then you may be in a position to decide whether to sell settlement annuities.
Know the Nature of the Settlement
If you have settled a lawsuit with a structured settlement, you may have been told that a certain amount of your settlement has been “put into the structure.” Now you want to sell settlement annuities, so you wonder, “What does that mean?” There are two things to keep in mind.
You do not actually have an account. When you “put money” into a structure, a portion of your settlement is used to buy an insurance annuity policy. This annuity policy is a contract under which the insurance company will make payments to you in the future. It is not like a bank account…there is no money deposited into it. Also, because of tax laws, you do not even own the annuity policy. A third party (usually a subsidiary of the insurance company) is the owner.
The “value” of your structured settlement is less.
The life insurance company charges costs and fees for your annuity, and these amounts come out of the money that was used to purchase the structure. The life insurance company invests the remainder so that it earns interest and grows over time.
The remainder is referred to as the “present value”. As the value grows through interest into a larger amount, the life insurance company uses a portion to make your future payments and keeps the rest as its profit.
Forecast the Future
A structured settlement will ensure that you have money for your future. With that comes a certain amount of peace of mind. A structured settlement is a great way to turn your lawsuit settlement into a larger amount of money, but it takes time for that larger amount to grow. Your structured settlement is a promise from an insurance company to make payments to you, and those payments only reach their promised value on the dates they are due. Before that, they are worth less.
Balance Your Portfolio
An insurance annuity can be a great feature in a balanced investment portfolio – particularly one that will fund your retirement. Later in life, the steady income from the annuity will help pay for your rent or house payment (if you have any remaining payments due), pay your utilities and property taxes, and give you money for groceries and other expenses, not to mention medical costs not paid for by insurance. Your annuity can round out your portfolio if you have other investments such as an IRA, 401(k), or a pension, stocks, bonds, and property. But of course, you can sell settlement annuities to get cash now.
On the Other Hand
If you have been a smart investor and have maintained a balanced portfolio, an annuity might not be the best fit for you. If you have investments in place that will pay for your housing, property taxes, living and medical expenses, then you might want a little more control over your lawsuit settlement funds than an annuity allows.
Keep this in mind if circumstances make it necessary for you to sell settlement annuities. You do have options.