There is a lot of information on the web regarding how to sell your structured settlement annuity payments. While some writers have valuable content, more often than not, readers will come across blog posts containing errors and mistruths. To distinguish fact from fiction, I took the most common myths about structured settlements to Rescue Capital's John Zepeda to get his take.
Myth #1 - Structured Settlement Payments are awarded by the Courts - A structured settlement is a financial agreement that allows court-awarded compensation to be paid in regular payments rather than in one lump sum. These arrangements are primarily used to settle personal injury or malpractice suits. Typically compensation is paid for a fixed period or lifetime. Sometimes they include a cash lump sum. Since every structured settlement is tailor-made the terms will vary.
Myth #2 - Structured Settlements and Annuities are the same thing - A structured settlement is a financial arrangement that allows court-award compensation to be paid for fixed period. This is usually done through the use of an annuity. An annuity is a financial product that provides a series of payments over a specific period of time. Delivered on a set schedule, these payments can be paid monthly, quarterly, biannually, or annually. There are many different types of annuities but they are typically sold by insurance companies. As in the case of a structured settlement, the insurer, or designated third party, purchases an annuity from a life insurance company in order to provide periodic payments to the claimant. Many individuals purchase annuities in order to have a reoccurring source of income during retirement.
Myth #3 - A Structured Settlement Factoring Transaction is a Loan - A Structured Settlement Factoring Transaction is not a loan. In order to obtain a lump sum of cash you are actually selling your future payment rights to a third party. Unlike loans, when you sell your payments you do not pay the money back and there are no effects to your credit score.
Myth #4 - It's illegal to sell your structured settlement payments or the insurance company will punish me for selling them -It is legal and has been so for a number of years to sell either all or part of your structured settlement annuity payments. There are laws to protect your rights and the transaction must be approved by the courts. Your insurance company cannot punish you for getting access to your money earlier.
Myth #5 - I can't sell my annuity because my contract has a no surrender clause - Typically surrender clauses do not apply to factoring companies and their ability to sell your future payments. A no surrender clause refers to the annuitant's ability to surrender the annuity back to the insurance company.
Myth #6 - The discount rate is 60% or more when you sell your payments - When you sell your future payments the factoring company needs to determine the future value of that money. So the number of payments, interest rates, inflation rates as well as when the payments are being paid out play a huge role in determining the value. So does the company you go with and their overhead. If you shop around and call reputable companies there is no reason why you should pay large discount rates.
Myth #7 - Certified brokers provide the best deals - If you use a broker you may get a better deal compared to calling only 1 company. However, if you call multiple companies you are more likely to get a better offer because you are not paying the broker too.
Myth #8 - I used XYZ company before so I need to use them again - If you previously sold payments, research shows that you get a better deal the second time around by getting competitive quotes from different companies. If you only call your previous company, you will not get the best deal.
Myth #9 - The lottery is a structured settlement - When you win the lottery you have the choice of receiving your money in a cash lump sum or taking the annuity. This is not a structured settlement.
Myth #10 - All annuities are tax-free - Structured settlement annuity payments as the result of a personal injury lawsuit are tax-free. Investment annuities, like the ones used for retirement, are not tax-free, they are tax-deferred. Tax-deferred means you will pay the taxes on the payments you receive, when you receive them. Hopefully by then you will be in a lower tax bracket such as at retirement time.
Make sure to always review any myths you may come across, and consult an expert in doubt.
Source: http://www.abcarticledirectory.com/Article/Popular-Myths-About-Structured-Settlements/1333652
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