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Structured Settlements are Fascinating

May 12th, 2007 · 1 Comment

From a blog discussing a recent public interest litigation, I was led to look up structured settlements. According to law, when someone wins a legal argument and is awarded money as compensation, a structured settlements sees to it that some or all payments awarded by a judge or jury are made to the affected person over a long period of time. Simply put – instead of being awarded 1 million dollars – lumpsum – you will be awarded monthly payments of $1000 for 20 years or something similar. Defense lawyers aggressively seek these settlements since it is much more beneficial to the party making such payments. Often times, when the person receiving the payments dies mid-period, the rest of the money is pocketed by the person supposed to make the payments, thanks to legalese.

The same kind of thing also exist for some lotteries, usually called “payday lottery” or something similar. Now some folks might want the lumpsum amount, say for medical bills following an acciddent. After all, you cannot postpone your medical bill payments. For such folks, there are lots of SSQ providers, who take over receipt of the payments and pay you the money. The catch is that they discount the payment they make since the value of money decreases over time, and since they have to wait to get the money due to you – this rate is called the “discount rate” and this shows you how much your future value of cash flow is interest and how much is principal. In other words, you can sell your structured settlement and even comparison shop for better quotes. I suppose the firms that buy your structured settlement will benefit from the deal since they are, in a way getting more money for less money – they pay you less than the value of the settlement itself. Fascinating.