Structured settlements offer the claimants involved in certain kinds of cases with a valuable means of achieving financial stability. Unfortunately, there are many myths which prevent applicants from adopting this approach, or even worse, prevent their attorneys from even advocating a structured settlement in the first place.
Some Common Structured Settlement Myths
Myth 1: Only disabled adults, minors, and claimants with a huge settlement ought to consider structured settlements
All claimants, including those who don’t have future medical requirements or large settlements, should get the chance to discuss their settlement options. There are certain claimants who may want some structured funds to supplement their monthly income, or to use for future expenditures such as retirement or college. Also, a huge portion of structured annuity carriers will write structures for settlements that are as low as $10,000.
Myth 2: Structured settlements are only dependent on market conditions
Most financial experts agree that structured settlements are some of the most stable and safest investments one can make. The rate of return associated with this sort of settlements is locked in when the annuity is bought, presenting the claimant with a viable investment, regardless of the market conditions.
Myth 3: The returns on structured settlements tend to be less than those of traditional investments
Even though a claimant may not see a double-digit return from their structured settlement, they may still see returns that are higher than those of a traditional investment. This is because structured settlements do not have significant overhead costs that usually come with traditional investments. Also, the resources in most structured settlements are not taxable. In the case of a traditional investment, there would be a higher pre-tax rate of return. In fact, taxable equivalent returns can even be higher in areas where there the state income tax is applicable.
Myth 4: A client can only employ the services of a structured settlement financial planner or broker, and not a settlement planner
It can’t be denied that there is a significant difference between structured settlement planners, brokers, and financial planners. It is also true that structured settlement brokers can help you cash out structured settlement payments instead of waiting, but that’s where it ends. Much in the same manner, a financial planner may not possess all the knowledge needed to assist you fully. When it comes to a settlement administrator, they have the necessary expertise and experience in a number of areas, some of which include:
- Benefit Preservation
- Trust planning
- Pressing needs such as health insurance and evaluating a viable life care plan. This means that they will be in an opportune position to help a client with their structured settlement.
Myth 5: Having a well-established investment portfolio vacates the need to consider a structured settlement
Investment strategies are dependent upon risk tolerance, and a huge portion of portfolios include a combination of growth and fixed investments. An income tax-free structured settlement can be a reliable and safe option for the fixed part of the portfolio. A settlement planner can have a combined conversation with their clients’ current financial planner to help establish the best course of action in meeting their long-term financial goals.
Myth 6: Only claimants involved in personal injury cases, wrongful death cases and workers’ compensation are entitled to structured settlements
Although a tax-free structured settlement is solely available in worker’s compensation, personal injury, and wrongful death cases, there is a still a tax-deferred alternative available that is referred to as a non-qualified settlement. As opposed to being liable for taxes on the whole lump sum settlement; there are certain situations under whereby claimants can choose to receive the funds over time through a structured annuity. All taxes are then payable only on the sum of funds received in that tax year.
Eligible cases include, but are not limited to:
- Employment disputes
- Sexual harassment
- Wrongful termination
- Punitive damage
- Psychological and emotional damage
- Sexual harassment
- Breach confidentiality
- Breach of contract
- Environment claims
- Construction defects
It is essential that you don’t fall for these kinds of structured settlement myths. As a client, make sure that you have access to all the tools you need to make an educated decision about how your money is handled.