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Structured Settlements

Managing Investment Risk
In this day and age the stock market is considered risky by many people, and conservative investors are not very happy with the low rate of return on their government bonds and fixed annuities. Where can you put your money that is extremely safe and at the same time yields a high rate of return (at least double what you could get with the same low level of risk)? Structured Settlements are the answer.

What Are Structured Settlements?
The term structured settlement refers to a structured payment stream; a financial arrangement between two parties whereby monies are paid in installments over time, with a fixed number of payments made over a fixed period of time. Typically Structured Settlements are fully amortized over their lifetime and include payments of principal and interest on a quarterly basis.

One type of payment stream is one paid to a tort victim, someone who has been harmed, who won a negligence lawsuit, and who receives a settlement for damages through a payment stream for a period of five- to 10- to 20-years from the defendant.

Another type of payment stream is one paid to a lottery winner. In most states, lottery winners can take a lump sum of a lesser amount or a payment stream for a period of years.

Discounted Payment Streams
For many different reasons, people who are receiving structured payments would rather have the cash now. The only way for someone to receive cash now (in exchange for their structured payment stream that is supposed to pay over a multi-year period) is to discount the future payment stream to a present-day value and sell it.

Guaranteed Rate of Return
Because of the present-day value discount involved, the cash invested by a purchaser typically generates a guaranteed rate of return between 5.5 percent and 7.5 percent (effective interest rate); that’s about twice what one could get using similar parameters with very low risk.

How big is the market?
The United States is the most litigious country in the world (94 percent of all lawsuits are instituted here). There are about $6 billion per year in legal settlements for personal injury (or wrongful death) claims. About $2 billion of these settlements are sold each year to investors at a discount of approximately 50 percent of what they were originally purchased for.

Should You Invest In Structured Settlements?
Yes, if you are an investor who considers yourself conservative but who would like to earn a “guaranteed” investment returns of 5.5 percent to 7.5 percent over a period of five to 20 years.