Things To Consider When Offered A Structured Settlement
If you find yourself in a position where someone owes you a large some of money, you might have two options. You can take a single amount up-front or you can opt for a structured settlement. Structured settlements are when money owed to you is paid out over the course of time. In many cases, this option provides you with a higher overall amount of money. If you take everything upfront, you receive less. There are several reasons for this occurring and many people might think it makes perfect sense to take the higher amount. Afterall, if you are patient, you will end up with more money than if you choose to take it all immediately. Unfortunately, the benefit of getting a higher amount over time does not always outweight the benefits of taking the money upfront for a lesser amount. Before making your decision, it is important to consider a variety of factors, including the difference. Usually it is not too significant, but it is up to you to decide if the difference in amounts is worth the risk.
Determine how responsible you are with your money. Though it is often better to take a lump sum, if you know you will be irresonsible and waste it, it might be better to stretch it out over time. You are creating a built in safety net. It is in no way ideal, but it is better than wasting all of the money as soon as you get it. Instead of a traditional savings account, you are forcing yourself to not spend frivolousy.
It is a good idea to consider handling the lump sum yourself though, and investing it in a way that forces you to save. Though the long-term payments might eventually equal a higher amount than a lump sum, will that amount be higher than if you invest it yourself? Could you put the money into a bank account or the stock market and turn it into an even larger amount that the long-term payments would have been? You might be better off managing the investment yourself, instead of letting someone else hold onto the money.
Find out if your family is entitled to the money once you are gone. Otherwise, you are giving up money that is part of your estate for no reaons. For instance, if someone owes you one million dollars and you choose to take that amount over the course of ten years, you will have gotten the entire million at the end of a decade. If you die in five years and your family does not get the remaining amount, you only received half of what was owed to you. If you take a lump sum that is reduced maybe by 25 percent, you are getting three quarters what is owed, but you are guaranteed to get that money.
Finally, can you trust that the person funding what is owed to you will be financially solvent over the course of the time they are paying you? What if they run out of money before your payments are all made. If they go under, you have no guarantee you will be any of your money. You could walk away with a thousand dollars out of the million you are owed. This is an important consideration when determining what financial arrangement will work best for you.
About the Author
Stewart Wrighter recently researched a landmark structured settlement case for an article. For more information about structured settlements go to
Tell others about
this page:
Comments? Questions? Email Here