In essence, the definition of a structured settlement is a formal agreement where one party pays another as compensation for damage and/or injury sustained. The said payment would be given at specific time periods following a given schedule. This would take the place of a one-time payout as a means to decrease the gravity of the liability for the party at fault. Also, the schedule payout would be given out in specific dates under the approving authority of a court.
This form of agreement is undertaken in compliance with law and given force and effect by court order. Once put in place, changing or modifying its provisions is not as flexible to adjust to the changes in the recipient’s circumstances. One of the benefits of this kind of payout set up would be the tax exemptions that can be applied to the scheme. While many opt for full one time payout, the benefits afforded in structured settlement schemes outweigh its drawbacks.
Structured Settlement Loans in a Nutshell
The term structured settlement loans is synonymous with structured settlement funding. The full amount is counted as an asset and it would stand as the security offered by the recipient for the loan proceeds given. Upon approval of the loan, the payout in structured settlement agreements would be used to pay the loan principal as well as the interest on the loan.
The above process is but an option, as another would be the buyout of the structured settlement loan by a private company, where the consideration for the exchange would be a lump sum amount.
The Benefits of a Structured Settlement Loan
The benefits of structured settlement loans can only be realized if one undertakes to agree to enter into one. Amongst them are:
- The lump sum amount is taken in a much shorter period of time. In the normal course of structured settlement agreements, the amount is spread over a period of time. When this is loaned out, the structured settlement loan proceeds are then paid out lump sum, albeit at a discounted rate for the assignment of the rights to receive the amounts per pay period.
- The amount paid out would be considered as the present value compared to the structured settlement agreement payout amount over time less inflation. Thus, the advanced amount is the value of the payout instead of a declining value over the length of the term of the agreement.
- In a structured settlement loan, the asset is turned into its full value instead of small amounts received over a number of years. In taking a loan, the asset value can then be received and then flipped to turn into an income generating asset for the individual recipient.
The Drawbacks of a Structured Settlement Loan
There are drawbacks to structured settlement loans, which are as follows:
- The value received now is a discounted amount of the value of the structured settlement. In undertaking to these structured settlement loans, the value of the settlement amount is now the value of the loan amount provided.
- There is a danger that the lump sum amount would be lost. This means it would be used up frivolously and the way to counteract this is by paying out the amount on an installment basis. This better protects those from predators as well as whimsical purchases made by the recipient.
Here, a structured settlement loan essentially advances the payout amount that has been set on a schedule for recipients. It is imperative that before any decision can be made, all the possibilities must be considered to avoid further injury resulting from loss of the income.
For more information read about examples of structured settlements.