Court settlement? Get your cash faster.
If you’ve ever been injured in a car accident, the proceeds you received may have been in the form of a structured settlement payout. You just didn’t know that’s what they call it. Much like shopping for big ticket items, there are ways to finance the payment of a settlement. A party liable for the debt can either pay up front or setup a payment plan which gets structured several different ways. There are advantages and disadvantages and limitations on how this happens.
First, to understand this topic, it is necessary to understand insurance, annuities and lawsuits. Once you are sued in civil court, you have the option of settling the case of fighting it. Most civil cases settle because even if a defense is mounted, it will be more expensive that a settlement, unless the claim is completely without merit. Settlements are also encouraged by the judiciary. In fact, in many jurisdictions, mediation is ordered by the court. The court forces parties to reach a settlement and bargain in good faith.
Once parties are ready to settle, the terms of the settlement become important. Some concerns by the plaintiff include the total paid to the client as well as the timing of the payment. The defendant has concerns too. Once they realize they have to pay, they want to ensure they get the best value for their money.
When payment is the concern, parties often reach an agreement to structure the payments. Old fashioned payment plans would set a fixed amount owed and then a period to make the payments. Interest would often be added to the amount owed. However, there would be no guarantee with this sort of arrangement. The party that owes the money, depending on the circumstances, could simply file bankruptcy and pay nothing or very little of the money it owes. This form of structuring the payout relies heavily of the solvency of the defendant.
There is also the discounted upfront payment. Some defendant’s want to get a better deal and offer to pay most of the money up front if there is a discount. This payment term usually happens before the final agreement is reached. For example, if a drug company negotiates a payment of 10 million, if the company has money on hand, it may further ask for a concession of, say, 1 million to give an incentive to pay earlier.
Then the other form of a structured payout during a settlement is the annuity route. Basically, an annuity is a payment received every month from an investment or insurance company. The idea is betting on how long a person will live. Annuities make money when a person lives shorter than the projected period and lose money if they live longer. Say you have 100 dollars in an annuity. If you just received straight interest on a 7% investment, then you would get 7 dollars a month. But if you put it in an annuity you may get 10 dollars a month, with the agreement that if you die before a certain day, the company gets to keep that principle. An annuity is basically an investment product designed to give regular income. It’s a great tool to use in a structured settlement to ensure all parties are happy.