Personally Injured Can Profit More Buying Another Person's Structured Settlement
by Tracy M
My daughter was injured in an auto accident and was suggested to do a structured settlement to claim her compensation. We did our research, contacted attorneys and brokers who searched for us and shopped prices. Finally, we agreed on a good structured settlement plan. The thing is that once set up, it is "locked." So, once we have agreed to the proposed settlement and set up a periodic payment plan, we could not change it anymore. Not that it wasn't a good deal.
It was about the best we could have hoped for. Structured settlements are protected in many ways and relatively secure. The payments are not taxed, and that makes it great although I would not compare it to any investment deal that have good yields, because in fact the returns on structured settlements are fairly low, and the reason is because interest earnings on investments as a rule are correlated with their risk level, so variable and volatile investments will have a greater return potential while lower risk instruments have a lower return as well. Since structured settlements have a very low risk level, the return can't be to large.
Still, it is relatively guaranteed and at least keeps up with inflation and is exempt from taxes, so when this is factored into the plan, it amounts to a greater return.
The things is, however, that a while after the structured settlement agreement was put in place, and we have agreed on its details, it became locked, and then conversing with an insurance expert who is also active and experienced for many years in buying structured settlements from insured people, including for personal injury cases, he asked me about my personal injury structured settlement compensation, and inquired why I didn't do an even better deal.
He went on and explained to me that I could have done a good investment deal with him and partnered with him in a structured settlement buyout from a different person who claimed personal injury insurance as well and also established a structured settlement and wants to sell it. So, I could invest and buy it out together with the insurance expert. This way, he explained to me, I could have doubled the return amount.
The reason to the increased return on buying out structured settlements is because when you buy out a structured settlement you pay the insured person only part of what he would get from periodic payments and you take over the payments and your profit margin is large enough equaling more than than the growth percent you would have accumulated on a regular structured settlement.
There's a downside, that when you as a factoring company or investor buy out a structured settlement you have to pay taxes on it, but in my case, as he explained to me, it is different.
According to him, when I would ask the court to invest the personal injury compensation in buying out the structured settlement from another party, I would still have no tax obligation since it is purchased originally with the compensation that goes directly to this, so it is protected the same way as when you yourself set up your own structured settlement.
So, I would have earned a much greater return and it would still not be taxed, although the factoring company itself does pay taxes on their earnings because for them it's a secondary market and a transfer from the original holder of the structured settlement.
To be sure, I inquired on this to my lawyer and he said he understands it and it is true, but he questioned if I can still pull out from the structured settlement that was already locked. He verified with the broker and it turned out indeed that I'm locked into the original settlement.
Now, taking my own structured settlement and selling it will not be the same thing, because if I go ahead and sell my structured settlement for a lump sum, that one time cash out will not be taxed, but if I take that lump sum and reinvest it in purchasing another person's personal injury structured settlement, I will have to pay taxed later on on any interest earned on that policy.
So, in my case I couldn't benefit any more from doing it, but it's a good thing that people know because brokers usually will not suggest this option, that they may not be aware of at all since it's not the standard way, but if you ask you can get such a plan which may turn out to be a much better deal.