When you’ve been through an extraordinary (and possibly extraordinarily awful) experience that has required you to file a lawsuit or accept a settlement from an insurance company, you may be reeling from the aftereffects of everything you’ve endured. When that happens, the last thing you’re going to want to face is the need for money, but the fact is, you’ll need money more now than ever before. And while you may have been fortunate enough to collect a very generous settlement offer as a result of the trauma or difficulty you’ve experienced, it could be some time before you receive that settlement. Or you may be receiving that settlement, but the payments may not be fast enough or large enough to meet the needs you now face. When that happens, it may be time to consider a structured settlement loan.
United States law allows for the recipient of a structured settlement to use that structured settlement as a means of securing a structured settlement loan, selling all or part of the future payments in exchange for an immediate lump-sum payment in some amount negotiated by the lender and the borrower. Because the “present value” of money, particularly in an environment of high interest, is lower than the amount of the deferred payment, the lump sum received is typically less than the total value of the annuity payments. The assumption is that the borrower is willing to exchange that higher total value for the benefit of the lump sum funds immediately. In other words, money now is worth more to the person spending it than a greater amount of money later, but in the eyes of the lender, the exchange is one of a greater amount of value in future payments versus the cost to the lender of the lump sum paid out now.
This is why taking a loan against part of the structured settlement is such an attractive option, especially to those who need liquid cash now and for whom waiting for the structured payments (or even the first of the structured payments) may not be an option. In other words, if your structured settlement is, let’s say, for a thousand dollars a month, but you need three thousand dollars of liquid capital right now in order to meet immediate obligations, waiting up to forty-five days for your first payment of a thousand, or knowing that you’ll have the three thousand total sometime within the next four months, is of little benefit. Taking a loan against all or part of a structured settlement can afford real value to clients who require immediate cash. But what do you need to consider while you evaluate the prospect of taking out a structured settlement loan?
Michael Kitces, writing in Nerd’s Eye View, explains, “As interest rates remain low, investors – especially retirees – struggle to find yield wherever they can. Unfortunately, though, the necessity of earning a required return to fund financial goals becomes the mother of invention for a wide range of investment strategies, both legitimate and fraudulent. A recent offering of rising popularity is structured settlement annuity investing, often offering ‘no risk’ rates of return in the 4% to 7% range. In general, the opportunity for ‘high yield’ (at least relative to today’s interest rates) and “no risk” is a red flag warning. But the reality is that with structured settlement annuity investing, the higher returns are legitimately low risk; the appealing return relative to other low-risk fixed income investments is not due to increased risk, but instead due to very poor liquidity. Which means such investment offerings can potentially be a way to generate higher returns, not through a risk premium, but a liquidity premium. But the caveat, however, is that the investments are so illiquid and the cash flows so irregular, they probably should at best only ever be considered for a very small portion of a client’s portfolio anyway.”
Why, then, Kitces asks, are the returns on such loans as high as they are? “It’s not due to risk,” he writes. “[The] annuity payments are generally backed by highly rated insurance companies that are anticipated to have virtually no risk of outright annuity payment default (after all, that’s what the original structured settlement payment recipient was counting on for those payments in the first place, and the court wouldn’t have approved it if the annuity provider wasn’t sound!). And the payments are generally guaranteed and fixed to the dates that are assigned; unlike lifetime annuitization that planners may be more familiar with, the payments from structured settlements generally are not life contingent (i.e., the payments will continue, even if the original annuity dies). Instead, the returns are due to sheer illiquidity. … Yet in many cases, the structured settlement recipient really needs the liquidity for some reason, and can’t wait long. The end result: the structured settlement recipient becomes willing to give up a healthy discount rate to get that lump sum of cash now.”
Kitces goes on to explain that the internal rate of return on many structured settlement loans is fairly appealing in today’s marketplace. “It’s worth noting as well,” he goes on, “that structured settlement annuity investing is not just something that clients are being solicited for. Some of the structured settlement brokers involved are now reaching out to work with financial advisors directly as well (as a way to get access to more investment dollars), and in some cases advisors can actually be compensated and share in the commissions for helping to arrange such investments (not unlike how registered representatives are paid for many forms of annuity investing).” While he cautions that structured settlement annuity investing has its limits, he does believe seller demand exceeds buyer interest, which means (for you) that securing a structured settlement loan remains a very viable option when you need cash now and you have a future stream of income to use as leverage in securing the loan.
Craig Guillot of Bankrate explains that availability and viability of structured settlement loans is also contingent on the state of the economy, “During the recession,” he writes, “many people were searching for cash and liquidity to stay afloat. Even as the economy improves, there are those who have a need for money and will turn to some unusual places to get it. Selling annuities, structured settlements, scheduled lottery payoffs or other ongoing payments for cash became more popular during the recession. But for those still feeling a cash crunch, this tactic is seen as a potential option.
…Yet, sometimes cashing in is the only option. That $500 monthly payment from an old accident may have helped with medical bills early on, but if the beneficiary lost his job and fell behind on some bills or had to make significant costly repairs to his home, a lump-sum payout of $50,000 may seem quite enticing. …Americans have a great deal of money tied up in structured settlements and annuities, with a little less than $6 billion worth of new structured settlements written each year, according to the National Structured Settlements Trade Association. At the end of 2013, there were also 34.8 million individual deferred annuity contracts in place exceeding $2.58 trillion, according to LIMRA Secure Retirement Institute, a nonprofit research trade association for the financial services industry.”
“Sam the Financial Samurai,” meanwhile, says that the advantage to having a structured settlement is that the money is tax-free if set up properly. Structured settlements can also be beneficial because they provide a source of income for the recipient well into the future, where as lump sum payments will more likely be spent if the recipient does not manage their money responsibly.” What that means for you as someone seeking a structured settlement loan is that, if you don’t budget your money wisely, taking that loan and therefore converting your future payments to a lump sum now might be something you need to seriously consider ahead of time. Still, when you need the money to pay immediate bills, all of the consideration in the world won’t change the economic realities that you face. “Handling a large lump sum of cash can be exhilarating,” he offers as a caveat. “And it can be a little unsettling, too. Money causes people to worry, and worry spins half-truths or unfounded myths about financial issues at hand. Selling your structured settlement into a lump-sum payment is an opportunity to increase your net worth — not limit it. All it takes is a little guidance from a structured settlement buyer and a plan of action for your cash to breakthrough any doubts.”
You don’t have to cash out of your settlement if you don’t want to, of course, but the expectation is that you need money and that is why you are looking for a structured settlement loan. You could choose to invest some of your loan, too, in order to leverage that lump sum into alternative future streams of income that will improve your financial situation. With careful budget planning, it need not affect you adversely no matter what you choose.
Financial expert Suze Orman, on the other hand, points out that “payments received in a structured settlement are generally tax-free; if you sell in return for a lump sum, you may owe state and federal tax, thus reducing the settlement’s value. More important, the firms that buy your settlement are out to make money by underpaying you for its real value. The bottom line: Cashing out today can mean netting far less than you’d get if you kept the payments. …If you need help tackling your bills and learning to live within your means, I suggest you contact [a credit counseling service].”
Most who are awarded structured settlements for personal injury, lawsuits, and other legal actions are owed money for what in some cases has been an extended period of suffering and pain. But especially when a settlement or judgment is very large, that payment may be doled out over time (and this is one way to increase the total amount of the settlement, as it gives the entity paying it more time to pay). What happens, though, when you need money now and you simply can’t wait? This is when a structured settlement loan can make all the difference in your financial survival. If you are receiving structured settlement payments, it could be that you would indeed accept a smaller total amount compared to the future value of your payments if you could have access to the funds in a single lump sum immediately.
This is about total purchase power, which is what a lump sum from a structured settlement loan is. This is the basis for selling annuity payments or, in the context of Infiniti Funding’s business, using those payments as the basis for a structured settlement loan. Infiniti can get you the cash you need now based on the value of your future annuity payments, giving you the immediate purchasing power you require to finance your small business, purchase a home or a car, or fund whatever other project you have in mind that requires the benefit of your total annuity payments now, rather than at some date in the future when all those payments have received. Especially because financial markets are frequently unpredictable, it’s hard to say how much value a monthly payment might be, especially if those payments extend many years into the future. Having access to a lump sum, based on the future value of those accumulated payments, could make all the difference in financing the purchase, investment, business, or other project that you have in mind.
Let Infiniti Funding service your structured settlement loan needs. We will ease your fears, give you all the information you need, listen to your concerns, and tailor our financial solution to your specific requirements. Your structured settlement gives you great future buying power. Let us translate that future buying power into buying power now, when you need it.