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Risks of Structured Settlements

Potential Risks of Structured Settlements

Usually, information written about structured settlements focuses on the positive. With this type of insurance policy or monetary award associated with a personal injury having so many benefits, it is easy to understand why. However, along with the positive, many people want to know about potential risks. The interesting thing is that structured settlements have no real risks. Considering that other types of financial deals and investments come with risks, it seems impossible.

Keep in mind that along with a structured settlement being used as payout to the policyholder or person awarded in a court of law, this type of settlement can also be used as an investment opportunity. Regardless of the issuer or the reason for the settlement, insurance and financial experts agree that a structured settlement is virtually risk free. Since structured settlements have no real risks, the focus of this article is a mix of informational and cautionary at best.

For starters, if the structured settlement were the result of a monetary award in court due to personal injury, the court would order the other party's insurance provider or in the case of a company, the company itself to pay you a specified amount based on type and degree of the injury. This money would then be used for living expenses while you are not able to work and in some cases, a portion of the money may go toward paying medical expenses associated with the injury.

The amount awarded in the structured settlement would be calculated in payments based on a bi-monthly, monthly, or annual schedule. Because of that, you would have still have income on a regular basis. Since the payments are controlled through the court system, you would never need to worry about receiving them, getting the payments late, or being paid the wrong amount. Instead, every time a payment is due, you would receive a check in the right amount and on time.

Another option that some people choose is to receive the money via a structured settlement loan. In this case, rather than receive money on a scheduled basis, any money due would be paid in one lump sum. Typically, the decision to go this route is because of an unexpected financial emergency. However, if you were going to receive money through a structured settlement and decided to go the loan route, the way in which the money is spent would be completely at your discretion. Because of this, you could buy a new home, car, boat, or take a vacation, etc.

Now when talking about potential risks, it is essential that when a structured settlement loan is chosen instead of scheduled payments that a plan be established to avoid spending the money unwisely. Even if you were excellent at managing money, chances are good that you would be faced with the challenge of spending too much or too fast. After all, most people are tempted when faced with having a significant amount of available cash. Therefore, if there were any potential risks of secured settlements, this would probably be the biggest one.

Finally, if you choose a structured settlement loan, keep in mind that you would be charged a significant fee by the company that loans the money. In other words, in exchange for them handing over a large sum of money they charge something, which would be deducted from the settlement amount. Again, while not a "risk" per se, it is essential to know that this would be a part of any lump sum decision.