Sructured Settlements have been the most widely implemented form of monetary compensation to an individual for their injury and or losses since 1982. Before Congress created the “Periodic Payment Act”, lump sum settlement payments were a more traditional route. A lump sum payment is a one time cash settlement adjudicated to a victim or individual, and a structured settlement is a series of tax-deferrred pre-determined periodic payments with a fixed value over a specified period of time.
Legislation passed in the 80’s made it possible for people to receive these periodic payments with the added benefits of being tax free, the rationale used in this process was that an individual would also receive payments that included interest allocated for the term of te payments. When you sell strucutred settlement payments, you are reducing the total sum amount by forfeiting the interest yo have not yet earned.
However, the nominal interest accrual on these payments cannot be compared to the interest rate you might receive on another investments protocol, CD, IRA, stocks, bonds…..
Many people realized that they could re-invest their cash into more lucrative and relatively shorter term holds now. More and more people sought to sell their future payments for a lump sum. Foregoing the interest they had not yet earned, and utilizing the buying power of their dollar value today to re-invest.
