When it comes to selling structured settlements there are some special considerations you should be aware of. Primarily you need to safe guard yourself against potential exploitation from those who buy structured settlements.
Overly Aggressive Commissions – Annuities are a major income earner for insurance companies; because while many people pay into the pot, not many actually receive them. Often times there are large commission percentages associated with these annuities. Make sure the amount of commission paid out is NOT way higher than the principle amount paid out.
Inflated Value – After negotiating the settlement figure in a particular case the defense will state the value of the settlement as more than its real value. In the end the plaintiff, by accepting the settlements in reality receives a much lower dollar value than was initially stated. Some defendants have paid the full value of the settlement while at the same time knowing they would obtain huge rebates later from the annuity company they used. Plaintiffs should definitely take the value of the settlement to a variety of insurance companies to compare the commissions and fees charged and in this way they can make sure they are receiving an equal value. It may also be a good idea to structure the settlement so that any rebates received by the defendant are made payable to the plaintiff.
Double Dipping – This is a common term used in many industries to refer to people who are involved financially in both sides of a deal. For example if your lawyer is also involved in insurance annuities he would be inclined to set up arrangements that benefit him more than the plaintiff. Or, if the lawyer is setting up your annuity and then buying the insurance settlement from his own company.
Another form of double dipping would be when the lawyer setting up the settlement refers your annuity purchase to a particular financial planner, who in turn pays the lawyer a referral ‘bonus.’ Make certain you are aware what financial interest if any your attorney has in relation to the financial institution supplying the annuity.
Remaining Life Duration – As a result of the injury a person’s life expectancy may be significantly lowered. It is important to consider this when you are evaluating a structured settlement and to be aware of the conditions of the settlement. If the payments terminate upon death of the one who was awarded the settlement than the actual amount paid out may not be in proportion to what is owed. Often times it will make more sense to make sure the settlement states a certain amount of payments be made or that an entire balance will be paid out rather than just until death of the plaintiff.
You must always consult with a tax professional if you plan to sell or buy structured settlements. Don’t mess around with the IRS, they will hunt you down for the rest of your life.
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