You’ve probably heard them on the radio or seen their ads on TV: finance companies eager to buy structured settlements (or annuities or other stream of scheduled payments that are legally bound). In other words, these companies will award a structured settlement holder a single lump sum of money for all or part of their payment stream. Why would they want to do that? What’s in it for them? In short, they get the same benefits you would if you kept the structured settlement yourself:
- tax processing: Depending on how the courts structure the payment stream, your tax liability may be limited or even NOT associated with scheduled payments.
- reliable income: Businesses are just like you: they need money they can count on to keep their doors open. A short-term, orderly stream of income is one of the most reliable streams of capital out there.
- Healthy return on investment: When a company offers to buy your structured settlement, it will not offer the face value of the debt; they will pay slightly less than what you would have received if you had kept the agreement for its allotted lifetime. For example, if you have an agreement that will pay you $100,000 over the next ten years, one of these finance companies might offer you something like $80,000 to make the purchase. The gap between face value and what they pay is where they make their profit.
So you can see that these finance companies have many reasons to buy into your structured payment stream. But you’ve mentioned that most of these benefits apply to you too, so make sure you’re willing to give up those benefits to receive that part of the money right now. One final note: This is all assuming that selling your checkout flow to a third party is even an option. Many states (about 2/3 of them) have statutes that restrict the sale of structured settlements, and you may also be affected by federal restrictions. Do your due diligence before you even approach one of these providers. But if it looks like you can sell your payment stream and you REALLY need a lot of money right now, it’s good to know you have options.