Should You Sell Your Structured Settlement?
If you have received a structured settlement through a personal injury claim, you may be tempted to sell your annuity to a company in exchange for a lump sum. This is a very big decision that should not be taken lightly. Here is a list of some pros and cons of selling a structured settlement for you to decide what is best for your situation.
Pro: You Need Cash Now
If you are in a dire situation such as extreme debt, cashing in your structured settlement might be the best option for you. However, keep in mind that you will no longer have this monthly income, so you may find it harder to make ends meet each month depending on how much you receive. Bottomline, if you really need a chunk of cash, and you do not have anywhere else to get it, selling your structured settlement is not a bad idea. Remember that there are many competing companies that want to buy your structured settlement, so do not accept the first offer thrown at you. Make sure to shop around and accept the highest bid.
Pro: To Make a Profit
Some people believe that instead of putting monthly payments of a structured settlement into a savings account or spending it on unnecessary things, it would be better and smarter to invest it. For this reason, many people decide to cash in their structured settlements for a lump sum to invest. If you have a knack for investing or a trusted money manager, you may make more money in the long run if you sell your structured settlement to put towards investments. Keep in mind that there is also a way to invest or save for retirement with monthly payments (such as a Roth IRA).
Con: Income Taxes
One of the biggest reasons financial advisors advise their clients to keep receiving monthly payments instead of selling for a lump sum has to do with taxes. Structured settlement payments are generally not income-taxable. However, if you decide to cash your structured settlement in to receive a lump sum, it will be heavily taxed, and you will receive much less than if you wouldn’t have sold out.
Con: Money Management
If you are a self proclaimed money spender versus a money saver, selling your structured settlement is probably not a good idea. If you have a big hunk of cash sitting in your bank account, you will be much more likely to splurge on a new sports car you do not need, if you catch my drift. It can be very tempting to spend when you see a bunch of zeros on your bank statement, and for this reason, selling your structured settlement should be avoided unless it is completely necessary.
If you plan on selling your structured settlement to pay for a necessary expense, make sure to plan ahead. The process of selling your structured settlement can be very lengthy–it can take 6 to 8 months to finally see the cash in the bank. You will want to have enough time to shop around to find the best possible offer.
Con: Structured Settlement Companies
Though not all structured settlement buying companies are bad, you must remember that they are a business that needs to make a profit. These companies have to make money too, so there is no way that you will receive as much through selling than if you would have continued to receive monthly payments. Keep this in mind.