Structured settlements are financial arrangements that provide periodic payments to individuals, typically as a result of personal injury claims, wrongful death lawsuits, or worker’s compensation cases. These settlements are funded through annuities purchased from insurance companies and offer long-term financial security to recipients. A secondary market exists where investors and institutions purchase structured settlements in exchange for lump-sum payments. This market presents opportunities for both investors and individuals seeking immediate cash for future payments.
This article explains what it means to purchase structured settlements, how the process works, reasons for selling, and key considerations for buyers.
What Does It Mean to Purchase Structured Settlements?
To purchase structured settlements means acquiring the rights to future annuity payments from an individual who agrees to sell the payment stream in exchange for a lump sum. A third-party factoring company or investor takes over the right to receive scheduled payments for a discounted present-day amount.
Two parties benefit from this transaction:
- The seller receives immediate cash for expenses or investments.
- The buyer secures a reliable return through guaranteed annuity payments.
Why Do People Sell Structured Settlements?
Sellers are typically motivated by the need for immediate liquidity. Common reasons include:
- Paying off debt or mortgages
- Funding education
- Covering medical bills
- Launching a business
- Purchasing a home or vehicle
- Handling family emergencies
Selling provides cash access but eliminates long-term periodic income
How Does the Process to Purchase Structured Settlements Work?
Buyers must understand the legal and procedural steps involved.
1. Finding a Seller
Buyers locate individuals interested in selling their structured settlement payments. Factoring companies act as intermediaries.
2. Offering a Quote
Buyers assess the payment schedule and remaining balance, then offer a lump sum based on present value. This involves applying a discount rate to account for time value and investment risk.
3. Legal and Court Approval
Structured settlements are often court-mandated and tax-advantaged. The transaction requires court approval to ensure legality and protect the seller’s interests.
4. Transfer of Rights
After court approval, legal ownership of future payments transfers to the buyer, who begins receiving the annuity payments.
Who Can Purchase Structured Settlements?
- Private investors seeking stable, long-term income
- Institutional buyers such as banks, hedge funds, and financial firms
- Factoring companies that purchase and manage settlement payments
Each type of buyer must comply with legal and financial regulations to ensure transaction integrity.
Benefits of Purchasing Structured Settlements
1. Predictable Income
Structured settlements provide fixed, scheduled payments that generate consistent returns.
2. Higher Yields
Buyers purchase at a discount, resulting in higher effective returns compared to CDs or bonds.
3. Low Risk
Annuities are typically issued by top-rated insurance companies, reducing default risk.
4. Portfolio Diversification
Structured settlements add income streams not tied to market volatility, enhancing portfolio balance.
Risks and Considerations Before Purchasing Structured Settlements
1. Liquidity Risk
Structured settlements are long-term investments with limited resale opportunities.
2. Legal Requirements
Court approvals and varying state laws can make transactions time-consuming.
3. Creditworthiness of Annuity Issuer
Buyers should verify the financial strength of the insurer issuing the annuity.
4. Discount Rate and ROI
A poor discount rate calculation may result in underwhelming returns.
5. Scams and Unregulated Brokers
Work only with licensed, reputable companies. Perform due diligence to avoid fraudulent offers.
How to Start Purchasing Structured Settlements
1. Work with a Trusted Factoring Company
Choose companies with strong reputations and proper licensing. Examples include J.G. Wentworth, Peachtree Financial, and DRB Capital.
2. Verify the Annuity Provider
Check the insurance company’s credit ratings through agencies such as A.M. Best or S&P.
3. Review the Legal Documents
Have legal professionals review all agreements. Understand payment terms, schedules, and clauses.
4. Understand State Laws
State-specific laws govern structured settlement transfers. Know the rules under the Structured Settlement Protection Act (SSPA).
5. Calculate Returns and Risks
Use financial tools to estimate ROI and evaluate risk. Consult financial advisors for investment analysis.
Final Thoughts: Should You Purchase Structured Settlements?
Purchasing structured settlements provides stable, long-term returns for investors. Sellers benefit from access to immediate cash. These transactions offer mutual value but require careful review and legal compliance.
Investors gain consistent income, low market correlation, and attractive yields. Sellers address urgent financial needs without taking on debt. Legal processes and proper documentation are essential for valid, enforceable agreements.
With due diligence and the right partners, structured settlement purchases serve as a strong alternative investment strategy or liquidity solution.