History of Structured Settlements
Most people are ill-equipped to manage a significantly large amount of money, like that awarded in court cases for wrongful deaths or personal injury. Structured settlements came along as a way to ensure that those who won such cases would actually experience the financial security the case was aimed at achieving.
Settlements increased in popularity when Congress passed the Periodic Payment Settlement act. The legislation encouraged the use of structured settlements in personal injury cases by offering significant tax exemptions for money received in a structured settlement.
Structured settlements are a type of annuity, which means the money is managed through an insurance company. The installments from the annuity issuing insurance company were exempted not only from federal income tax, but state and local income taxes as well.
Emergence of Structured Settlement Purchasing Companies
With an increase in the number of structured settlements, more and more people had special circumstances.
Life happened and individuals scheduled to receive payments were unable to borrow against the settlement income when emergencies came up. In some cases people couldn’t wait for their money to arrive and wanted a way to access the money they knew would come to them eventually.
Enter the secondary annuity market and structure settlement buyers. A secondary market was created when, structured settlement buying companies emerged as a solution to that particular group of settlement owner’s problem.
Settlement buyers offer settlement owners immediate cash in exchange for selling future payments the owner is slated to receive. When a secondary market transaction occurs, instead of getting the future payments, the buyer is the recipient of the payments and the former owner gets a lump sum from the buyer.