Structured Settlement Loan: The Downside

A structured settlement is a large amount of money awarded to an individual with a specific payout schedule. The funds are disbursed over a period of time rather than given in one large amount to help the recipient pay for living expenses and monthly bills if the award was made through litigation.

Structured pauot agreements can be generated from lottery payouts, insurance awards or inherited annuities from a relative's estate. The bottom line is that a structured settlement is a monthly income stream that continues throughout the term of the agreement.

However, as anyone knows unforeseen situations do come up that may require access to more cash than a person has in the bank. Usually a loan is taken out as mortgage on the home or unsecured debt in the form of credit cards etc. but, you can also take a loan against your structured settlement payments you receive as well. If you have access to a monthly income stream through a structured settlement, you can sell all or part of these payments to get a larger amount of money in a shorter time period.

Unfortunately, there are downsides to this type of arrangement that everyone should be aware of before pursuing this type of agreement.

1. There are many companies out there who will gladly pay you a lump sum to receive the monthly income stream. But the cost of getting your money early may be extreme. These companies will pay you a discounted rate for the purpose of making a lot of money over the life of the annuity.
2. Structured Settlements were designed to provide a way for an individual to manage their money and provide a consistent source of funds to pay bills and etc. Receiving a single amount of money can be an extreme temptation to blow the money on luxury items rather than what is was meant for.
3. Accepting a large amount of money through a settlement loan may trigger significant tax burden to the individual that received the money. This alone can be a reason to avoid a structured settlement loan.

In summary, if you are receiving a monthly income stream from a structured settlement and want to get the money faster, there are several reasons you may want to proceed carefully before signing an agreement.

Structured settlement payouts should be based not only the immediate needs, but also have enough flexibility built into the agreement for the future.