What is Structured Settlement and How To Purchase Them
You might have heard about Structured Settlement, and you might have basic knowledge about it. Yeah, you get monthly payments instead of a lump sum, in the event you get hurt.
But did you know you can purchase and invest in Structured Settlements?
Why would someone want to purchase structured settlements? Well, it’s simple. They are excellent low-risk investments that can provide high yield returns (4%-8%).
Note: It’s not no-risk, but low-risk. Any investment always has some sort of risk associated with it.
Structured Settlement Investments can be a nice addition to your wealth portfolio. Like the old saying goes, don’t keep all your eggs in one basket, and buying structured settlements is the perfect way to keep your portfolio diverse.
But how exactly does Structured Settlement Payments Work? Keep on reading and we will explain, but first, we must know what a structured settlement is.
Structured Settlements: A Brief Explanation
In the event that a person sustains an injury, and wins a lawsuit against the responsible party, the responsible party will have to pay out a certain amount to the injured. Instead of paying out the total sum (Which is taxable), they agree to pay out a monthly settlement for a certain degree of time(Tax-free)
Unlike you reading this article about investment opportunities, most American Citizens aren’t financially savvy. When they win a lawsuit like this, they might go on a spending spree, or have a hard time saying no to friends and family who wants to share in their newly acquired wealth.
By receiving regular monthly payments, this money will last longer.
Instead of the responsible party being liable for the monthly payments, they purchase an annuity from an insurance company to make the necessary monthly payments. This allows the responsible party to resolve their end of the settlement with one lump sum payment.
This is a very basic but comprehensive explanation for structured settlement buyers for investment purposes.
How to Purchase Structured Settlements
Sometimes the person who receives these monthly structured settlements payments needs to cash out early. Maybe they are in a financial pinch or just want the entire amount now. By selling structured settlements, you can get the money.
A broker or structured settlement companies buy them out, and then instead of keeping this for their portfolio, they sell structured Insurance settlements to potential investors.
The investor pays a certain amount and takes over the annuity.
For example, an investor can purchase structured settlements for $132,320.83, with two payments. $100,000 in 2024 and another $100,000 in 2029, giving him a total return of $200,000.
The image below will show how a monthly structured settlement investments will look like.
So what we can deduce from the picture. The investor will pay $160,841.01, and will receive monthly payments till the year 2032, receiving a total of $230,832.80.
This is just two small examples, but investments can go up into the millions.
As you can see, the return isn’t all that great, but better than some other investment opportunities, and for structured settlements buyers, it’s a pretty low risk too.
The only risk that we can mention, though, is it’s not really liquid. If you want to cash out, you will most probably have to sell it on to a broker again, and then you will definitely make a loss.
But if you are investing for the long-term, structured settlements is certainly worth a look and a great addition to your investment portfolio.
Disclaimer note: Do your own Risk Assessments before investing or speak to a Registered Financial Planner for more advice on Structured Settlement Investments
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