Disadvantages to Consider When You Buy Structured Settlements

If you are considering the option to buy structured settlements as a part of your settlement plan, you should read this article to learn the potential disadvantages that may arise.

Specifically, you need to understand that you will receive your payments over time instead of in one lump sum. You will likely not be able to obtain a structured settlement loan. Finally, you will likely receive a lower rate of return on your money than with traditional investments.

You need to read this article carefully to decide whether you should purchase structured settlements or take your settlement in a lump sum of cash.

Payments Are Received Over Time Instead Of Lump Sum

Often times the major benefit obtained when you purchase structured annuities is that the payments are received over time. This prevents the wasting of resources due to financial mismanagement or fraud.

On the other hand, where the plaintiff has a legitimate need for cash to purchase a home or go to college, the periodic payments received when you buy structured settlements do not matter. The only option is to obtain cash for structured settlements from a broker.

In that case, you will receive cash at a substantial discount from the net present value of the payments.

Cannot Borrow Against Future Payments

Because of the federal and state laws regulating these types of settlements, it is difficult to get a loan secured by these periodic payments. Banks and other lenders know that they will have to obtain court approval before they can secure the loan with the annuity.

As such, it is usually easier for the owner to cash for structured settlements than to try to obtain a loan.

Lower Return On Investment Than If Invested Elsewhere

Most often plaintiffs purchase structured annuities because they provide a reasonable rate of return while protecting the unsophisticated plaintiff against mismanagement or waste. However, where the plaintiff if financially astute or responsible, he may obtain a better rate of return by receiving cash investing it himself.

The plaintiff should realistically look at his level of sophistication and discuss their options with a financial advisor.

Only You Can Decide Whether To Purchase Structured Settlements

Now that you know a little more about the potential disadvantages that may arise when you purchase structured settlements, you are in a better position to avoid making a costly mistake. Just realize that the nature of a settlement tool is that you receive your settlement in the form of payments over time.

You cannot obtain a loan should you need cash in the future. Lastly, you are likely to receive a lower rate of return on your investment than taking cash and investing it yourself. Of course, financial mismanagement, waste and fraud can quickly and significantly offset the potential advantages of receiving your settlement in a lump sum.

In the end, you have to make the informed decision that is right for you.