With interest rates at rock bottom, the stock market at its most volatile in decades, and the housing market screeching to halt, decent yields are getting harder to come by.
However, you might have heard a lot about a newly popular investment vehicle that is increasingly grabbing people’s attention. Investing in structured settlement annuities has been touted as a low-risk, high-yield boon to any portfolio.
You have probably seen commercials in which structured settlements are mentioned. While they can seem confusing and niche to those who are not familiar with them, structured settlements represent a $6.02 billion market.
Here’s why investing in structured settlements is something that is worth consideration.
What Are Structured Settlements?
Before we start discussing how to invest in structured settlements, it is important to outline what they actually are.
They are essentially a legal financial agreement. It is agreed upon between a plaintiff and a defendant following a successful personal injury or similar claim.
It guarantees the plaintiff a series of fixed payments over a specific term. These payments are usually managed by the defendant’s insurance company.
They are a common feature of the American legal landscape and come in all shapes and sizes.
How Do You Start Investing in Structured Settlements?
If you want to invest in structured settlements today, it’s worth knowing more about where the investment opportunity lies in these financial arrangements.
With a structured settlement, a plaintiff might decide that they no longer want fixed payments, but require a lump sum.
It is their right to request this. If so, then investors can provide the cash for the lump sum for the plaintiff.
In return, the insurance company can continue making the scheduled payments to the investors, instead of the plaintiff.
This process can be arranged by recommended and trusted structured settlement companies to invest in.
The Pros of Investing in Structured Settlements
There are a number of benefits of investing in structured settlement arrangements. For one, the entity paying your returns will usually be a massive, reputable insurance company.
This means that your investment is secure and that the entity paying your returns definitely has the capital to back it up. In addition, structured settlements are purchased at a discount to the full amount of the payout.
This means that you have a very high chance of seeing returns. Typically, the cost of the investment might be 4-7% lower than the total payout over the lifetime of the settlement.
This means that, over time, you can expect to see a solid yield on the investment.
The Cons of Investing in Structured Settlements
If you want to invest in structured settlements, remember that they do not come without downsides. The main issue is the so-called ‘illiquidity problem‘.
This describes the fact that such investments are fixed according to the terms of the settlement.
As the investor, you are bound to the settlement that you have paid for. It can be exceedingly difficult to sell on your investment if you need to free up some cash. If you do, it will often be at a steep discount.
Investing in structured settlements requires knowledge about the American legal landscape.
If you’re ready to learn more about the latest legal developments in America, make sure to read our regularly updated and expert Legal Guides today.