A structured settlement buyout is a useful option when you come to regret the decision to take a structured settlement over a lump sum compensation award.
Despite the many advantages of structured settlement annuities, such as tax breaks and the financial security they offer, many people realize later on that they would have been better off taking all the money in the beginning.
When this happens, you have two options for selling your annuity – a full buyout or a partial buyout.
A full buyout
The most common option when people sell structured settlement payments is known as the full buyout – when the entire annuity is sold in one go.
The reason full buyouts are more common is because in many cases people prefer to take a lump sum as soon as their compensation has been agreed, but unfortunately insurance companies do not always offer to pay the entire amount at once.
In this case, many immediately decide on a full structured settlement buyout so they can get their hands on the money as soon as possible.
Full buyouts are popular with people who believe they can make more money by selling structured settlement payments in order to invest the full amount in something more profitable, and this is often accepted by a judge in court (remember you do need approval to sell structured settlement annuities).
Other reasons that people opt for a full structured settlement buyout are when they are suddenly faced with unexpected costs that they cannot afford.
This includes things like paying off large debts, buying a home, paying for healthcare, education, buying a car etc.
Any situation like this where a large cash injection is needed to improve the policy holder’s life can be considered a valid reason to secure court approval for selling.
A partial buyout explained
Partial buyouts are the best option to take when the seller only needs a modest amount of money to take care of their immediate needs. In this kind of transaction, only a percentage of the annuity will be offered for sale to structured settlement companies, rather than the whole structured settlement.
The advantages of a partial buyout are that the seller gets to keep at least some of the income from the future payments that arrive monthly or annually.
This type of buyout is recommended if your circumstances do not warrant the sale of the entire annuity, because any structured settlement sale will see you lose money in the long run.
Structured settlement buyers are not charities – they will pay significantly less than the value of the policy they are buying in order to make the venture profitable for them.
Usually with partial buyouts, courts tend to give more leeway in the reasons for selling. A judge would most likely allow you to sell part of your settlement if you have recently lost your job, or you need to carry out minor repairs to your home, and many other reasons.
So when it comes to the crunch and you decide to sell your structured settlement annuity, remember that you have options available and you don’t need to sell the entire policy if you are not comfortable with doing so.