3 Critical Things to Think About Regarding Annuity Cash Payments

Posted by Radmin on August 7th, 2019

The purpose of a structured settlement annuity is to payout an award in a planned, scheduled manner. How much is paid out depends on the amount of the award and the expenses of the recipient. In some cases, annuity cash payments are desired or needed in order to cover a major expense not factored into the structured payment schedule.

If you find yourself in that situation, before you sell structured settlement annuity payments for quick cash, make sure you consider the following.

Need Versus Want

Every financial advisor tries to get their clients to focus on this principle: Is the expense in question truly a need or is a want? The answer to that often shapes their advice regarding what the client should do. The same principle applies to considering using a period of payments from a structured settlement annuity in order to get access to quick cash.

Because there are some tax liability questions involved, thinking long and hard about trading payments for cash is not only appropriate, but could be vital to your financial stability. You do not want to find out you owe money to the government because you took a payment as a lump sum; nor do you want to create a tax liability where none exists unless absolutely necessary.

When to Pay it Back

Cash payments for an annuity or portion of annuity payments come at the expense of access to those funds later. Even if you are selling payments for the immediate future, you still will not have that money if you get it in a lump sum and spend it. The only way to avoid an immediate financial deduction in your payments is to secure an agreement that says the payment for the lump sum will come at some point in the future.

Can You Afford the Lump Sum

It is assumed that if you ask for a lump sum payment in exchange for scheduled payments of a structured settlement annuity, you know you will not have the money you receive each month currently. That means if you use your annuity payments to cover living expenses, you will not have that money during the term of repayment for the lump sum payment. If your monthly annuity is your sole source of income or a major part of it or if it covers medical expenses, you should think long and hard about whether you can forego the lump sum.

Annuity cash payments can be a quick way to get access to cash that you otherwise would have to wait to receive. Making sure your desire for a lump sum meets the criteria above is critical to ensuring you use your fund in the best manner possible.

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