Calculating The Cost Of A Structured Settlement Buyout: 3 Financial Implications You May Not Have Thought About

If you are receiving payments through a structured settlement buyout each month, a buyout gives you the opportunity to get a lump-sum payment now that you can use to buy a house, pay for college expenses or cover medical costs. All you have to do is divert your settlement payments to the lender and pay them a percentage. Sounds great, right? While a structured settlement buyout is a wonderful financial opportunity for some, it's not for everyone. Before you decide to take a buyout, you should think about the following three financial implications you may not have thought about.

A Settlement Will Cost You

Nothing in life is truly free, and the same is true for structured settlement buyouts. While you don't have to incur debt or make payments after receiving a buyout, it will still cost you. Lenders take their percentage out of the total amount that you expect to receive from your settlement and give you the rest. To do this, lenders use what is called a discount rate, which is similar to a home mortgage, but in reverse. If you get a lower discount rate, you will end up paying less for your lump sum of cash. Therefore, it's very important to shop around for the best rate. 

There's A Possibility of Suspended Government Benefits

If you plan to hold your lump sum of cash or a portion of it in an account, you may lose your government benefits, such as social security disability. You see, any money that you have in an account is considered an asset and may affect your eligibility for certain programs. For this reason, you should always check with anyone you receive benefits from to see if getting a buyout will affect your eligibility. 

Your Monthly Income Will Be Lower

When you sign over your structured settlement, you will stop receiving payments. If your settlement payments account for a large part of your monthly income, you might not be able to afford to live as comfortably as you do now. You should also think about how not receiving payments in the future will affect your future budget. If you expect your monthly expenditures to rise in the future, you will want to take that into account. 

There are several financial implications you should consider before accepting a structured settlement buyout. Always weigh the financial benefits against the drawbacks before deciding whether or not a buyout is right for you.