We have all heard the commercials for receiving cash for a Structured Settlement or annuity. Is this a good deal?

There are numerous companies that “buyout” structured settlements- offer you a lump sum payment in exchange for all or part of the monthly payments you receive. Maybe you could not have anticipated some of the costs associated with your disability and need the money now or maybe you entered into an agreement that was ultimately not in your best interest. However, before you decide to “cash out”, there are several things to consider:

First, about two thirds of states have enacted laws which restrict the sale of structured settlements, and tax-free structured settlements are also subject to federal restrictions on their sale to a third party.

Also, some insurance companies will not assign or transfer annuities to third parties, to discourage the sale of structured settlements. As a consequence, depending upon where you live and the terms of your annuities, it may not be possible for you to sell your settlement.

Keep in mind that companies that buy structured settlements intend to profit from their purchase, and sometimes their offers may seem quite low. Some of them will work hard to convince you that taking 50% (or even less) in one lump sum is somehow beneficial to you. In nine cases out of ten, selling a structured settlement is not a good investment decision. Ideally, selling a structured settlement for cash should be the last alternative and should be resorted to only if the individual is confident of managing his own investment portfolio in a competent manner. This is because in any sale of a structured settlement, it is possible to lose up to half of the long-term value of the structured settlement. You may benefit from approaching more than one company in relation to the sale of your settlement, to make sure that you obtain the highest payoff.

You also want to be sure that the company that wants to buy your settlement is established, well funded, and reputable - you don't want a fly-by-night outfit to obtain the rights to your annuities but to disappear or go bankrupt before paying you the buyout money. You may have to go to court to get a judge to approve the buyout.

Then there are the tax implications of selling your settlement. As a typical structured settlement is designed to provide significant tax advantages to the injured plaintiff, there can be significant tax consequences associated with selling part or all of a settlement. It may be that, while payments made under the settlement were not taxed, the lump sum received through the sale of the settlement will be taxed.

While a lawyer may not be able to help you decide if you should sell your settlement, a lawyer or financial professional can help you figure out the short- and long-term financial consequences of selling your settlement. They may also be able to help you determine a reasonable selling price for the settlement. A lawyer can also review a proposed contract for the sale of your structured settlement to make sure that you are adequately protected in the event of future complications.