DennisBeaverJanuary 17, 2015 • By Dennis Beaver

“Unless your readers who are thinking of selling all or part of their structured settlement payment rights exercise caution and take their time, they could lose an enormous amount of money,” warns New York attorney, Edward Stone, recognized as one of the country’s leading experts in the area of Structured Settlements.

“Many companies advertise cash now, offering to buy your settlement payment rights at good rates, but how are you going to know? It’s only when you obtain competing offers from different companies that you will discover if you have a good rate or not.”

As we will explain how in a moment, buying payments due under a structured settlement annuity can be hugely profitable for the buyer, and a monumental loss for the seller.

“On a lot of levels, buyers of structured settlements have become very aggressive. I’ve seen far too many accident victims give up huge amounts of money because they were unaware of how to negotiate, or consider if they were selling their structured settlement payment rights for valid reasons,” Stone tells You and the Law.

Selling structured settlement payments should require sound reasons

A Structured Settlement annuity provides a guaranteed stream of payments from a life insurance company over a period of years — often for life — as tax-free compensation, usually for a personal injury or the death of a close family member

“So, why would anyone want to cash it out? Isn’t that the wrong thing to do?” we asked Stone.

“It can be. Still, you should be free to do what you want with your money if you have sound reasons, for example: paying off debt, bringing a home out of foreclosure, medical, bills, education, to starting a business and selling only what you need and keeping future payments coming.

“Selling allows access to cash for folks who need or want it, provided they are free from undue influence and have adequate mental capacity to understand the consequences of what they are about to do.

“But once those payments are sold, you can’t get them back. Independent professional advice from a lawyer, or an accountant is essential,” he underscores, adding a stern warning”

“If there is no other source of income and you depend on these payments, don’t give away the means of supporting yourself.”

Get the best offer by understanding the discount rate

Companies which buy these settlements cash you out and then wait to collect from the insurance company, payment by payment. Let say that you will begin to receive $1,000 a month for 20 years starting in February, 2015, for a total $240,000.

“But that’s not what you will get when selling the annuity,” Stone points out, adding, “because the buyer discounts these future payments by a certain percentage — the Discount Rate — which can range from single digits to well in excess of a whopping 20 percent.”

“As a seller, you want the lowest rate possible. With that $240,000 total payout, 8 percent would give a seller $122,077.73; at 10 percent, $106,764.66; $80,145.66 at 15 percent and only $63,615.26 at 20 percent.

“8 percent and 10 percent are reasonable and obtainable rates in today’s market, 15 percent is fairly common and 20 percent is high. So, it’s easy to see just how much of the total payout is lost by cashing in the annuity, and can amount to hundreds of thousands of dollars lost.

“You absolutely need to get different offers — bids — from several companies, as they will use different discount rates which by law must be revealed to you prior to selling. The more competitive the bidding, the better the deals usually becomes for the seller.

Remember, the higher the discount rate, the less the individual will receive. The lower the rate, the more the person gets.

Watch out for nasty tricks

“Buying structured settlement payments rights can be profitable for the buyer but the marketplace has become highly competitive. Some companies target sellers with aggressive solicitations — sometimes even in the form of a check that looks like found money.

“The small print states that if cashed, you are agreeing to sell your future payments at a discount, so do not be fooled by the temptation of free money,” Stone cautions. “These ‘checks’ are anything but free — they lock you in to additional sales of your future payments.

“Structured Settlements can be of tremendous value to an injured individual and his or her family members. Before selling, seek out independent professional advice from someone whose judgment and common sense you respect,” Stone concludes.

There are even more dirty tricks which we’ll look at next time, but also, substantial legal protection for people selling their structures. So, unless you’re in a big hurry to sell, why not come back next week, as chances are we can help put more money in your pocket.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.