Television commercials blare, "Sell annuity payment." The ads promote companies that are in the business of purchasing structured settlements and other types of annuities, such as mortgage notes or lottery awards. These companies urge individuals who are recipients of periodic revenue streams to exchange a portion of that income for a lump sum of cash. The commercials make it sound very tempting to exchange money from the future for money in the here and now. But annuity recipients should think carefully and do their homework before acting on such an offer. These types of companies usually have websites that can provide detailed information about the services that are offered and may have a Frequently Asked Questions (FAQ) section. Advice from financial experts and planners may also help interested individuals to make knowledgeable decisions on the wisdom of heeding the "sell annuity payment" call.
The history of structured settlements is a relatively brief one dating back to congressional action that took place in 1982. At this time, Congress passed the Periodic Payment Settlement Act which regulates the long-term compensation of injury victims. With a structured settlement, the defendant works with an insurance company to set up a compensation plan so that the injured plaintiff receives periodic monetary payments for the rest of his or her life. One of the provisions of the Periodic Payment Settlement Act is that this income is not taxable. To sell annuity payment or payments is to give revenue that may be needed in the future. However, individuals usually don't sell all their future payments. The companies work with annuity recipients to make decisions on the revenue to be purchased so that the individuals can obtain the needed cash. For example, the person may need a down payment on a home. Or perhaps the injury requires a vehicle with certain modifications. A lump sum of money may be needed to make these modifications to a new vehicle. To sell annuity payment or payments for these kinds of needs is understandable.
Structured settlements are regulated by both federal and state laws. In some cases, the injured plaintiff and the defendant, through their attorneys, may reach a settlement before a court trial is decided. The structured settlement will be negotiated between the parties. The agreement will provide such details as how often the specific amount of money is to be received. For example, the recipient may receive monthly, quarterly, or annual payments. The monetary amount may stay the same or may change depending on the circumstances. When the injured person is a minor or an incapacitated adult, the court may require the settlement. This lifelong revenue stream is designed to pay for the injured person's future medical needs and basic living expenses. Because of these details, a legal process is involved to sell annuity payment or payments. Courts often approve or disprove the sale and purchase of annuities.
Let's say that an injured person negotiated a compensation plan that provides $1,000 a quarter. This person needs additional funds to go to college. Instead of applying for a student loan, the person decides to sell annuity payment or payments. Perhaps $4,000 is needed, so the aspiring college student needs to sell four payments. Even if the court approves the process, the student will not receive the entire $4,000. Certain deductions and expenses will lower the amount. For example, the student may be required by state law to hire an attorney to review both the settlementagreement and the sales agreement. The court will want to ensure that the student is protected from scams and hucksters. It would be a tragedy for someone who has already been physically injured to such an extent that a settlement is necessary to then have this income taken away by a criminal. King Solomon wrote: "The righteous considereth the cause of the poor: but the wicked regardeth not to know it" (Proverbs 29:7). The courts protect the injured from the wicked.
In addition to certain legal expenses, the company buying the payments needs to make a profit. Since the legal process may take two to three months, the company may give qualified annuity recipients the desired cash before the process is completed perhaps in just a few days. However, this is actually a type of loan. Here again, the individual may want to seek advice from an attorney or a financial expert before signing any papers to sell annuity payment or payments. It's not only the injured who receive periodic revenue. Lottery winners often receive the winnings in annual installments. These people may prefer a lump sum award. They can sell the future payments for cash, but the lump sum will be significantly less than the total of what would be received in installments.
Mortgage noteholders are individuals who are privately financing the sale of a house. The buyers send the seller a monthly check instead of sending a mortgage payment to a financial institution. The time may come, however, when the seller no longer wants to receive the monthly payments. However, the buyer may not want to refinance the house with a financial institution. In this case, the seller may sell the mortgage to a company who specializes in this type of business. The company will give the seller a lump sum of cash in exchange for the future monthly payments. Just like individuals who sell annuity payment or payments, however, the lump sum will be less than the total of the mortgage owed. In all these instances, individuals are urged to seek legal and financial advice before signing any agreements or contracts.