Fri. Jun 2nd, 2023

structured settlement loans pros and cons

Pros and Cons of Structured Settlement Loans

If you have recently received a settlement and are considering whether or not to accept structured payments, there are a few things you should know. First, you should weigh your goals for the money and consider tax implications.

In addition, you should also consider the pros and cons of structured settlement loans.

1. Tax-Free

In the United States, settlement money that is received as compensation for personal injury or wrongful death does not count against your gross income. This is because these payments are deemed to be compensatory, rather than traditional income.

This can be very helpful to those who have had an accident and need a stream of money to help pay bills or cover expenses. It can also be very useful to the beneficiaries of an estate, especially if it’s being used to compensate a family member for a wrongful death.

Another benefit is the tax-free nature of the payments. Under Section 130 and Section 104 of the IRS code, damages that are received as a result of a suit or agreement for personal injury or wrongful death are tax-free.

Additionally, the annuities that fund structured settlements are not subject to any tax on interest or dividends that may be earned by them. This can help those who are looking to invest their settlement money in stocks, bonds or mutual funds.

A structured settlement can also be a great way to save for retirement. The payments are spread out over a long period of time, making it easier to avoid spending a large sum of money too quickly.

The other benefit of a structured settlement is that it is not available to anyone else for any reason, including a divorce or creditors seeking payment. This can make it harder for friends and family to ask you for money.

In addition, structured settlements can be used to prove your income to lenders who want to see proof that you have the ability to repay a loan. This can be especially helpful if you are applying for a mortgage to purchase a new home or bankroll a renovation project.

Many people are interested in taking out a structured settlement loan to help them get by during a financial crisis or to cover the cost of a major life event. While this is not something that is generally recommended, it is possible to do so if you are careful about the terms of the loan and are able to document how much income you will receive from your structured settlement.

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2. No Need to Declare It

If you are thinking of getting a loan to pay off debts or for a major life event like a wedding, buying a house or a new car, a structured settlement loan can be a practical way to get the money you need fast. However, you may have to look for a reputable company and the most important thing is to be honest with them about what you need.

Structured settlements are also known for their tax-free, periodic payments that can be tailored to fit your unique needs and budget. These can be used to cover lost income, medical expenses and family expenses. They also come with the added benefit of being able to spread the payments over time.

Unlike annuities, which can impose hefty fees and charges to change your investment options or tack on a fee for the latest and greatest technology, structured settlements are designed to provide you with a lifetime of income.

It’s no secret that the structured settlement industry has a booming business. They are the source of tens of billions of dollars in payouts each year, and this is not even counting their long-term financial security benefits.

There are many facets of a structured settlement that make it the smartest choice for anyone who has been injured or suffered some other sort of catastrophic loss in their lives. They are also the most likely to provide you with a good or even great financial future. For example, they offer a tax-free payout that will not impact your eligibility for disability or Medicaid benefits in any way. They are also the best possible money-saving solution to your debt problems.

3. Higher Interest Rates

While structured settlements have many pros, they can also have some drawbacks. One of these is higher interest rates.

As the economy continues to recover, interest rates are increasing again. This is good news for personal injury plaintiffs because they are able to receive higher returns on their structured settlement payments.

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However, rising interest rates can also make it difficult for injured parties to find the money they need to pay for their medical bills or buy a new car. The same can be true of homeowners who are trying to get a loan for a renovation project.

Fortunately, there is a solution to this problem. There are companies like LawStreet Capital that can help people sell part or all of their structured settlement payments to obtain the cash they need to finance their needs.

It is important to note, though, that you cannot use a structured settlement as collateral for a mortgage loan. This is because the law that makes structured settlement payments tax-free prevents you from selling them to a lender so they can use it as collateral for a mortgage.

Banks that lend money to people often look at the borrower’s ability to make their monthly mortgage payments and other loan obligations. This includes whether they can show proof of their income, such as a recent check from their structured settlement company or a past set of bank deposits.

A bank is also more likely to approve a loan with the promise that they can get their money back if something happens to the borrower. This is called a “guarantee.”

The problem is, not every mortgage lender is willing to offer a guarantee, especially if it involves structured settlements. You can avoid this by making sure you choose a bank that has a reputation for being fair to its customers.

If you are in need of a structured settlement loan, contact an experienced attorney who can assist you with finding a lender. They will be able to discuss your options and recommend the best way to handle your situation.

4. Timely Payments

When you receive a structured settlement, you get the money in small, periodic payments instead of a lump sum. This is meant to promote better money management and give recipients more flexibility in spending their funds. However, it can be difficult to predict when you’ll receive your next payment and it’s important to plan ahead.

Another benefit of receiving your structured settlement payments over time is that they’re typically tax-free. As long as the income doesn’t exceed your gross income, you won’t have to pay taxes on them. This is particularly beneficial when you have a disability, such as a permanent illness or a chronic condition, that may result in a lower income over time.

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In addition, these payments don’t count toward your overall gross income and they also don’t affect your eligibility for government programs. This means that you can receive a structured settlement even if you’re ineligible for Medicaid or Social Security disability benefits.

Sometimes, a payee needs immediate access to cash, whether due to unforeseen medical expenses or a need for college tuition or to put down a deposit on a home. When this happens, they often turn to a company that specializes in purchasing structured settlements and providing a lump sum payout in exchange for their future payments.

This is an option that’s often advertised online and on TV, but it’s important to do your research before you sign up with any company. You should obtain quotes from a number of companies, so that you can compare their prices and determine which one will best meet your financial needs.

You should also make sure that the company you choose is legitimate and has a good reputation. Avoid companies that provide misinformation or pressure you to sell your entire structured settlement. These companies are trying to take advantage of people with legitimate financial issues and may try to sway you into a bad deal. Be sure to ask friends and family for their opinions on the companies you’re considering. You can also check with the Better Business Bureau to see if any complaints have been filed against them.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.