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Disadvantages Of A Structured Settlement

Disadvantages Of A Structured Settlement

When a judgment has been ruled in your favor it is uncommon to receive a lump sum payment for the full amount of the judgment awarded. What is more likely to happen is a structured settlement will be negotiated which entitles you to receive periodic payments until the obligation is paid in full. While at first this might seem like an appropriate solution to receive a large amount of funds over a period of time you may soon discover there are disadvantages to this type of arrangement.

Structured settlements are often a part of negotiations resulting from automobile accidents or other personal injury cases. In the event of an accident or other injury a significant amount of medical bills tend to accumulate in a relatively short period of time. A structured settlement may make you unable to pay off medical expenses either immediately or in a timely fashion due to the small amounts received each month. Individuals receiving structured settlements often realize after the fact that it is next to impossible to pay off excessive medical debt and are only able to cover day-to-day expenses.

Another issue related to structured settlements is that the company in question may or may not be around in the future. If you're reliant on a company to pay you a fixed amount from a settlement over five or ten years then there is always a risk of not getting paid. There is no way to predict the financial stability or solvency of an organization that far out and you may wind up only collecting a small fraction of your structured settlement amount. Insurance companies are likely to purchase annuities to cover future structured settlement payments but there will always be a concern that something may go wrong and you won't get paid.

Most organizations don't want to maintain obligations related to structured settlements due to additional bookkeeping and expenses. Much like selling debt to third-party collection agencies, insurance companies will often farm out structured settlement obligations to other companies which will take over the responsibility of making payments to the injured party. Not only do you have to be worried about receiving payment from this new company but it also may come into question of which organization is responsible for the obligation going forward.

Many individuals who receive structured settlements after a short period of time decide they would rather have the full amount. At that point the only option is to sell your structured settlement on the open market to companies which assume the risk of future payments and take on the obligation themselves. Much like selling any other personal asset it is important to do your research and shop around for the best rates. You obviously will not receive the full amount of what the structured settlement would be after its final payment but you should get some percentage of the total amount which makes it worth your while.

Some individuals benefit greatly from a structured settlement especially if the other option is an appeals process challenging the judgment awarded. Sometimes agreeing on a structured settlement is best for both parties but make sure you understand the terms and conditions clearly before signing any agreement. The disadvantages of a structured settlement may not be applicable to all people but it is important to understand the obligations and risks involved during negotiations and once you start receiving payments.

Image by: Herr Olsen