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Process of Selling Settlement Payments

Here’s what to expect when selling your structured settlement.

  1. Get Quotes: Start by obtaining quotes from multiple factoring companies. Most companies offer free, no obligation quotes over the phone in minutes. It’s important that you clearly understand how much you’ll receive and how quickly you’ll get your funds.
  2. Compare Options to Find the Best Quote: Choose a quote with a low discount rate from a company that demonstrates credibility. This involves answering your questions and providing you with multiple buyout options that are tailored to your specific financial needs.
  3. Receive Court Approval: Once you accept and sign the offer, the buyer will arrange a court date. This is for your protection. A judge must approve the transaction after verifying it’s in your best financial interest. Based on state laws and the buyer’s policies, you may be required to attend the court hearing, or your buyer may be able to represent you.
  4. Access Your Funds: The buyer will inform your insurance company of the sale and coordinate the annuity transfer. Then you’ll receive your funds.

Know Your Selling Options

You have three options when selling your structured settlement: a full sale, selling a specific number of payments, and selling a percentage of each payment. Here’s how each one works.

Full sale: If you sell your full settlement, you’ll receive more cash up-front. However, you’ll receive no future payments, and you could spend the money poorly.

Partial sale: With a partial structured settlement sale, you’ll sell your payments for a set period. Once that period ends, you’ll resume receiving payments, leaving some long-term financial security.

Percentage of monthly payments: You can also sell a percentage of your monthly payments. For instance, you may sell 50% of each payment for the next five years.

Before choosing a payment structure, plan when and how you’ll spend the funds.

Common Reasons to Sell Structured Settlements

The terms of a structured settlement are naturally limiting, with the recipient entitled to payments on a strict schedule. People often choose to sell their structured settlement to meet urgent financial needs or take advantage of opportunities.

Common reasons to sell structured settlement payments include: 

  • Buying a home
  • Buying a car 
  • Financing education 
  • Paying off debt 
  • Paying medical bills
  • Investing in a business 

Companies that purchase structured settlement payments, known as factoring companies, can provide you with the cash you need in exchange for your remaining payments.

When you transfer your settlement payments, the buyer will always offer a price less than the total remaining value. Factoring companies use a formula to determine their offer based on a value called the discount rate. Before deciding to sell your structured settlement, it’s crucial to understand what structured settlements are and how they function. This knowledge will help you make an informed decision about whether selling is the right choice for you.

Understand the Discount Rate

When looking at quotes from potential buyers of your structured settlement, you want to keep an eye out for a LOW discount rate! 

The discount rate represents the annual return the factoring company requires to make it worth giving you cash up-front. Buyers primarily base their discount rates on their expectations for future interest rates. The higher the discount rate, the less money they’ll pay for your structured settlement payments.

Some factoring companies charge additional fees as well, so the discount rate isn’t the only factor in how much you’ll receive. These fixed fees mean it’s usually best to sell structured settlement payments only once, rather than making many small partial sales.

Discount rates vary among structured settlement buyers, but there is always a price for quick cash. Most companies use a discount rate between 9% and 18%, but some use an even higher rate.

Qualifications of a Good Buyer

When choosing a buyer for your settlement payments, make sure they meet the following criteria: 

  • Strong industry experience
  • Professional and transparent customer service, without being pushy
  • Few negative reviews on third-party rating websites
  • Free, non-obligatory quote
  • No hidden fees
  • Multiple buyout options available
  • Legal process and paperwork assistance
  • Competitive discount rate and fees

Pros and Cons of Selling Your Structured Settlement

All financial decisions come with advantages and drawbacks. Consider the following when selling your structured settlement annuity:

Pros

  • Receive cash quickly
  • Use the money to pay off debt, buy a home, or start a business

Cons

  • You’ll receive less than you would have received over time, based primarily on the discount rate
  • The process typically takes two to three months from start to finish

Tax Implications of Selling Settlements

Most structured settlements are not subject to U.S. federal income tax because they are not considered income by the IRS.

F.A.Q.

What about structured settlements for minors – can these be sold?

In general, selling structured settlements owned by minors follows the same procedure as that for settlements owned by adults. However, judges scrutinize these transactions more closely to make sure selling is in the best interest of the minor.

Why must a judge approve transactions?

The court hearing is required to ensure that your transaction makes sense for you. The judge will review how the sale will impact your short-term and long-term financial situation.

How do I know I am getting a good discount rate?

Shop around and get quotes from multiple buyers. No quote that you receive should be binding or cost any money. Remember, other fees and the buyer’s reputation and customer service matter too.

What are some red flags to look for in the process of selling my settlement?

Avoid companies that charge high discount rates, since you’ll receive less money. Also, be careful if a company only advises you to sell your entire payment. A reputable company would typically give you multiple quotes to choose from, including a partial sale.

What is the present value of my annuity?

The present value of your annuity is how much a factoring company will pay for it—less any other fees—based on their discount rate.

Can I sell my structured settlement?

Yes, you can sell your structured settlement. However, the transaction requires a court hearing and a judge’s approval to make sure you have a clear financial reason for selling.