If you could turn your lump-sum jackpot winnings into regular cash payments, would you do it? Given the stories about how lump-sum lottery winnings can ruin peoples’ lives, you can be forgiven for hesitating before answering.
Either way, this is the question behind the concept of structured settlements! This simple financial tool allows you more freedom when you win big, whether that’s a Powerball jackpot or a small court case. If you’re not sure whether this option is right for you—or what structured settlements are in the first place—here’s what you should know.
What Are Structured Settlements?
When you win a court case, you might find yourself on the receiving end of a lump sum of money. In most cases, if this lump sum is small, you’ll receive the payment in full.
However, if you’re set to receive a larger lump sum, you may have the option to get this payout as a “structured settlement.” This means that you’ll receive the payout in regular, smaller increments over a set timeframe. For some people, this offers additional long-term financial security over a larger lump-sum payment.
How Do Structured Settlements Work?
The process of getting a structured settlement may seem convoluted at first, but it’s easier to understand if you’re familiar with the concept of annuities. Annuities allow people to obtain a large payout, often from things like a lottery jackpot or a win at a casino, in smaller payouts over time.
In some cases, you’ll need to get an annuity, or structured settlement, from a life insurance company. This company will manage your payouts over time instead of allowing the at-fault party to do so. You can also seek assistance from a dedicated structured settlement issuer like Right Way Funding.
Just as you’d manage any other investment, you can get quotes from multiple businesses to compare the terms of the payout. You can negotiate your preferences in terms of the amount of money you’ll receive in each payout as well as how long you want to receive these payments.
Why Choose a Structured Settlement Over a Lump Sum Payment?
All of the information above may be straightforward, but it might still be hard for you to decide whether or not to choose one payment method over another. After all, why should you consider accepting a structured settlement instead of getting the full lump sum up front?
There’s no right or wrong answer to this question, as your choice depends on your current financial situation. However, there are a few reasons why you might want to consider getting a structured settlement.
Most importantly, structured settlements can give you added financial security via a long-term income. In addition, because they involve fewer taxes, you’ll keep more of the cash in your pocket.
If you’re not sure, it’s important to note that you can start out with a structured settlement before turning it into a lump sum payment if you change your mind down the line.
Get the Financial Security You Need
Whether you prefer a lump-sum payment or a long-term payout, it’s a good idea to weigh the pros and cons of both options. Structured settlements offer some great benefits for most people, especially if having a financial safety net sounds like a good idea in your situation, but don’t hesitate to speak to a financial advisor before making the decision.
Want more financial guides like this one? Our other posts are packed with additional tips and tricks, so be sure to check them out!
