What To Know About Cashing Out A Structured Settlement

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Key takeaways

Selling your structured settlement can provide significant cash but you won’t receive all the money you’re entitled to and it may reduce your long-term financial security.
Taking out an advance offers quick access to funds while retaining some future payments.
Cashing out a settlement can help you cover urgent expenses and bring peace of mind.

How to cash out your structured settlement now might be a question on your mind if you’re facing financial challenges and need immediate access to funds. A structured settlement offers financial security, but sometimes life demands cash sooner rather than later.

If you’re in a financial bind, you might be searching for ways to access structured settlement cash now. You can either sell or take out an advance. Before you go this route, take the time to understand the process and weigh all your options.

Understanding structured settlements

What is a structured settlement?

or the rest of your life. They are typically the result of legal cases like a personal injury lawsuit, wrongful death lawsuit, or insurance claim. The payments are intended to provide long-term financial security, covering ongoing medical costs, living expenses, or other needs. The ongoing payments are intended to minimize the risk of spending a large sum too quickly and to ensure that the recipient has a steady income stream for years to come.

How do structured settlement payments work?

Structured settlement payments are made according to an agreed upon schedule. These payments can be set to occur monthly, annually, or in other intervals, and they may be adjusted to increase over time or include lump sums at specific points. The payments are typically funded by an annuity purchased by the defendant or their insurance company. Once established, the structured settlement payment schedule is difficult to change, which is why some people choose to sell their settlements for a lump sum payment if their financial needs change.

Need for immediate cash

There are times when life throws unexpected financial challenges your way, and the regular payments may not be enough to cover urgent needs. If you’re thinking, “I have a structured settlement and I need cash now,” you’re not alone. Many people find themselves in situations where a lump sum payout could make a significant difference in resolving financial stress.

Why you may need cash now from your structured settlement

Selling a portion or all of your structured settlement can provide the money you need to address pressing concerns. Common reasons include:

Medical bills
Home repairs
Urgent or unexpected expenses
Debt consolidation or repayment
Buy a home
Start a business
Tuition payments
Investment opportunities

While this decision should not be taken lightly, it can be a lifeline when faced with substantial or unforeseen expenses.

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Options for getting cash now

You can sell part or all of your structured settlement payment stream in exchange for a significant amount of money. How does selling your structured settlement work? You either sell it in its entirety or take out an advance against a few payments.

Selling your structured settlement

By selling your structured settlement, you effectively transfer your future payment rights to the purchasing company for a one-time payout. This option is particularly appealing if you have a pressing need for a large amount of money and cannot wait for your regular structured settlement payout.

Structured settlements are sold to specialized companies known as structured settlement buyers or factoring companies. The company will evaluate your structured settlement and offer you a cash amount in exchange for your future disbursements. The amount they offer will be less than the total value of your settlement. The difference in value is known as the discount rate.

It’s important to carefully consider the terms, as selling may significantly reduce your long-term financial stability. However, for many, this trade-off is worth it when urgent needs arise.

Advance or loan against your structured settlements

Another option to consider is securing an advance or structured settlement loan. The term ‘loan’ is misleading. This is not a traditional loan as you are not borrowing money. What it refers to is selling a portion but not all of your future settlement payments. Unlike selling your settlement, this option allows you to receive the cash you need now without forfeiting all your future payments. A structured settlement loan can provide a good compromise as you get the funds you need now while keeping a portion of your future payouts. As before, you will work with a structured settlement buyer or factoring company to sell a portion of your periodic payments at a reduced rate.

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Considering your future payments

Should you sell your annuity payments in a lump sum? The answer depends on your financial situation. While you get a significant amount of money at once, there is a cost to cashing out.

Pros and cons of cashing out

Before making the decision to cash out, it’s important to evaluate the pros and cons.

Pros:

Immediate Access to Funds: A settlement buyout gives you access to money that can be used to pay off debt, cover unexpected expenses, or invest.
Financial Relief: Turning future payments into a lump sum can provide significant financial relief when you need it most.
Flexibility: Having cash in hand allows for greater flexibility in managing urgent financial needs.

Cons:

Loss of Long-Term Security: The primary downside is forfeiting the steady payment stream designed to provide financial stability.
Reduced Total Value: You will receive a discount rate – less than the full value of your structured settlement payments.
Not Instant Money: A court typically reviews the sale of a structured settlement to make sure it is in the best interest of the applicant. It can take anywhere from 45-60 days to receive your funds.

The decision to cash out your structured settlement should be made after carefully considering both the immediate benefits and the long-term impacts on your financial health.

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Getting the best deal for your structured settlement

Shopping around for multiple offers

When deciding to sell your structured settlement, it’s crucial to shop around for offers from multiple companies. Different factoring companies will provide varying terms and pay different amounts. Compare multiple quotes to ensure you’re getting a fair price. Don’t settle for the first offer you receive. Keep in mind that some companies specialize in different types of settlements – like personal injury. Finding the right buyer for your specific situation can maximize the value of your annuity.

Avoiding red flags and scams

It’s essential to work with reputable companies when offering your structured settlements for sale to avoid scams and unfair deals. Be cautious of any factoring company that:

Promises an exceptionally high discount rate
Pressures you into making quick decisions or to sell more payments than necessary
Does not have a physical address
Has poor customer service
Infrequently responds to phone calls

These can be red flags indicating a less-than-reputable company. Always research the company’s background, read reviews, and verify their credentials before agreeing to any terms. A legitimate company will be transparent about the process, costs, and timelines involved.

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Tax implications and court approval

Structured settlement payments are not considered income by the IRS and so are not subject to income tax – are tax-free. The tax-free status should also apply to your settlement payout. Consult with a tax professional to understand the details for your specific situation.

Before you can transfer the rights to your settlement, a court will have to approve the agreement. Court approval is required to ensure the sale is in your best interests and the purchase terms are not predatory. The judge will likely take into account your living expenses, life expectancy, and future financial needs. The whole process can take one to three months to complete.

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Frequently asked questions

1. Can you take money out of a structured settlement?

Yes, if you have a structured settlement, you can take money out of it by selling some or all of your upcoming payments for a lump sum payment. This process is known as a settlement buyout agreement.

2. Can you get an advance on a structured settlement?

Yes, you can get an advance. This option allows you to access a portion of your future payments immediately without selling the entire settlement.

Bottom line

Selling or obtaining an advance on a structured settlement can provide an easy way to access a significant sum of money. There are of course, advantages and disadvantages to doing so. You will receive a large sum without taking out a loan but you will forfeit your future financial stability and receive a reduced amount than what you were originally entitled to.

Before you go this route, consider borrowing against other assets like your home or retirement account. It may be more cost effective to take out a personal loan or cash advance if you pay the money back promptly. Talk with a financial advisor to make sure cashing out is the best option for you. If you decide it is, be sure to shop around and get offers from at least three reputable buyers so you get the best deal possible.

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Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

Cashing Out Your Structured Settlement Now

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