No Early Withdrawal Fee on a Cash Payout on Structured Settlement Transfers

Is there an early withdrawal fee on a cash payout on structured settlement payments?

As pertains to personal injury structured payment annuitants, there's really no fee or penalty, as there's actually no withdrawal, at least not in cases where you sell your payments rights for a third party funding company.

Misconception: surrender fee for cash payout on structured settlement

Can you withdraw early from your structured settlement agreement?

As far as we are concerned here as to personal injury annuity payment right holders, we prefer rephrasing the question as follows:

Can you sell your future payments for a single sum cash payout on structured settlement payment rights?

Why? Because in a structured settlement transfer, you are not actually withdrawing or annulling the settlement agreement that remains intact.

You are only withdrawing yourself from the scene inviting a different player in your place, but same payments continue to be paid out, just to an entity with a different name and address.

Contrary to the withdrawal or surrender of an annuity investment product, you are not "withdrawing early," you are only transferring on the same annuity payment rights to another person who will receive the annuity payments according to the original contract.

Personal injury vs investing

It is an investment in both cases indeed. In the case of a personal injury, you are agreeing to receive your payments over time instead of a lump sum pay, and you will receive more in the deferred payments as in a one time reward.

Likewise in an annuity investment, you are paying now a sum to gain interest on them and receive periodic payments over time.

Also, in both cases, the biggest advantage of the structured payments is the financial security that is allowed by receiving a steady stream of payments extended over a period of time.

But there are a number of differences between the two:

  • In a personal injury claim you don't pay out of pocket to fund the annuity; to the contrary, the lumpsump payout you are owed by the defendant's casualty insurance is paid in a settlement agreement to the insurance company that takes over liabilities and the money is invested for you in buying an annuity that will fund the structured payments, whereas in an annuity investment you are paying premiums to fund the annuity
  • Qualified assignment structured settlement proceeds from a personal injury claim are tax free, including the capital gains earned on the claim money, whereas payments from annuity investments may be taxed as ordinary income
  • While personal injury structured settlement payments can not be accelerated and paid out earlier than maturity dates, the payment rights may be assigned to a funding company in a cash payout on structured settlement payment rights that are passed on to the funding company by obtaining judicial approval without occurring any "early withdrawal" fees or surrender charges, while withdrawing money from a deferred annuity may yield surrender charges or an early withdrawal penalty of 10% if withdrawn before the age of 59.5 (or 55 if you stop working)

Surrender charge or not, there's a price for early cash-out

This is not to create the impression that selling payment rights of a personal injury structured settlement will not cause losses.

In fact, you are likely to loss a great deal in an offer to receive  cash payout on settlement transfers, as your aggregate payments value will be discounted to their present value by an applied discount rate that may be as low as 8% if you are very lucky, or 12% (and up) as is more common in the factoring industry.

Attorney and administrative fees and charges, as well as then need of the funding company to make a profit, will be factored into the discounted value of the cashed-out payments.

These charges are just not called "early withdrawal" or surrender fees. You are not "penalized," but you are paying a price for selling future payment rights in the favor of a current lump payment in a cash payout on structured settlement factoring deal.

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