Lump Sum Annuity

Before deciding on sale of Structured Insurance Settlement, one has to understand the advantages derived by such sale. You must also understand the market and the operation or the procedures of the settlement.

What is Structured Insurance Settlement?

In cases where the victim wins a lawsuit, filed for damages regarding accidents caused or because of any tort lawsuits, he gets compensation, awarded by the courts. The insurance company undertakes to pay the compensation to the victim. There are two modes of payment of compensation; one is paying it in one lump sum annuity or the other is paying the compensation as regular payment on monthly basis. In this case, the insurance company buys annuity on behalf of the claimant.

Why should one sell Structured Insurance Settlement?

The philosophy of structured payment by insurance company is to pay a particular amount to the insurance claimant, so that it would serve as a regular income. The advantage of such structured payment is that the claimant need not bother himself about the investment, market condition of the invested company etc. However, there could be some claimant, who for various reasons – for example, to pay the education expenses of children, to meet urgent medical expenses of family, etc – will be in need of lump sum money and the monthly annuity he gets may not be sufficient to meet all his commitments. In some cases, the person may find a better investment plan, which may fetch more money. In such cases, the claimant would consider selling Structured Insurance Settlement. In fact, by the sale of the Insurance Settlement, the person gets full control of the entire insurance compensation awarded to him and he can invest it in the manner suitable to him. Some financial experts say that this utility of ‘Sell Structured Insurance Settlement’ is generally not used by the claimants.

Understand these following points, before one decides on sale of Structured Insurance Settlement:

The person buying the Settlement will not pay the entire amount calculated over a period. Some portion of the cumulated amount deducts as his commission. The claimant, who decided about sale of the Structured Insurance Settlement, has to ensure that the loss, which he suffered due to the discounted amount, be made good by his wise investment plans.

The proceeds accrued because of sale of Structured Insurance Settlement must fetch more returns than what it would have fetched over a period, if the structured returns plan had continued. Thus, before deciding about sale of the Structured Insurance Settlement, the person should also consider to cover the value of return, due to inflation.

In the next step, the person should understand the legal aspects involved in such sale. If need be, he can take the assistance of insurance attorney before settling the deal. Normally, an agreement between the parties precedes such sales. A properly worded agreement is essential, so that it does not become another dragged issue to the court. An insurance attorney effectively handles all this.

The legal issues will vary from country to country and from one province to another, and therefore, it would be most appropriate to take the help of the insurance attorney.

The person must thoroughly analyze and find out if it is absolutely necessary to resort to sell Structured Insurance Settlement. If his paucity of money is a temporary phenomenon, in such cases it may be advisable for the claimant not to sell the Settlement. Hence, each case needs analysis on ‘need based’ concept. In fact, some even suggest that the person discusses his proposal of sale with some elder members of the family and with the spouse also.

On the part of the person buying such claims, he must also consult his insurance attorney and understand the issues involved in such purchase. In fact, some even advise to consult the tax consultants.

It is needless, to say that before the actual ‘Sell Structured Insurance Settlement’ transaction takes place, both the buyer and the seller should consult the financial experts. As far as the seller is concerned, the financial experts will advise the person about the viability of the sale as well as the profit or loss he would accrue over a period. As far as the buyer is concerned, the financial experts will advise the buyer whether the purchase would bring any financial benefit to the person etc. Only after the expressed opinion of the financial expert, the persons should decide about the way to conclude the transaction.