Buying Structured Settlements as an Alternative Investment

 

A four-panel digital comic titled "Buying Structured Settlements as an Alternative Investment." Panel 1: A gray-haired advisor in a suit says, “You can buy structured settlements...” Panel 2: A young man thinks, “Hmm. I’ll pay now… and collect payments later,” with icons of money and a calendar floating near him. Panel 3: The advisor says, “The court must approve the purchase,” as they continue the discussion. Panel 4: The young man smiles confidently and says, “Sounds like a good investment!” with dollar signs in the background.

Buying Structured Settlements as an Alternative Investment

📌 Table of Contents

What Are Structured Settlements?

Structured settlements are financial agreements in which a plaintiff receives scheduled payments over time as part of a personal injury or wrongful death lawsuit resolution.

Instead of receiving a lump sum, the recipient gets periodic payments funded through an annuity issued by an insurance company.

These steady, court-ordered payments can span years or even decades.

Why Investors Buy Structured Settlements

Some recipients choose to sell their future payments in exchange for immediate cash.

Investors, in turn, buy these payments at a discount, allowing them to earn predictable returns over time.

This creates a win-win scenario: liquidity for the seller, and a fixed-income stream for the buyer—often with yields higher than bonds or CDs.

How the Purchase Process Works

The transaction must be approved by a state court to ensure it’s in the seller’s best interest.

Buyers typically work through a settlement purchasing company or broker that handles the legal and compliance process.

Once approved, the buyer receives the right to collect the future payments directly from the insurance company.

Risks and Legal Considerations

Regulatory Oversight: Structured settlement sales are regulated at both the federal and state level.

Liquidity Risk: These investments are illiquid—you cannot resell easily before maturity.

Servicing Risk: Payments rely on the solvency of the issuing insurance company; defaults are rare but not impossible.

Ethical Risk: Some jurisdictions scrutinize purchases for fairness, especially when buying from vulnerable individuals.

Tax Implications for Buyers

Unlike the original recipients, who receive tax-free payments, investors are typically taxed on the interest income earned through the discount.

The IRS treats the yield as **interest income**, reportable annually—even if the investor doesn’t receive the full return until later years.

Proper tax reporting and coordination with a CPA are critical to avoid surprises.

Conclusion

Buying structured settlements can offer stable returns, low default risk, and diversification for alternative investment portfolios.

But these benefits come with regulatory complexity and ethical responsibilities.

Work with reputable brokers, legal counsel, and tax advisors to ensure compliance and assess whether this niche asset class fits your risk profile and investment goals.

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Keywords: structured settlements investment, buying annuities, fixed income alternatives, court-approved cash flows, illiquid high yield assets