Advance Cash Settlements

Written by Jacey Harmon
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Cash settlements are used to settle lawsuits that involve monetary rewards. Oftentimes the plaintiff will be offered a lump sum or a structured settlement. A structured settlement is paid out over a period of time and will often be a higher amount than a lump sum. A structured settlement is funded by an annuity that guarantees the payments will be made. This entices plaintiffs into accepting structured settlements without fully understanding and thinking through how they work.

Unless a cost of living adjustment is included in the settlement, the money will lose value over time. A simple two percent inflation rate can drastically reduce buying power over a period of time. At an annual two percent inflation rate that costs $1 would cost $1.1 in five years. If you stretch the payments out over a period of 20 years, the value of the money will steadily decline.

Offsetting Inflationary Pressures

Once a settlement is agreed upon, the terms cannot be changed. If a person is receiving extended periodic payments, eventually they will realize the negative affects of inflation. In inflationary economic conditions, interest rates will typically be on the rise as well. One can utilize an advance on the settlement payments to offset the negative affects of inflation.

To get an advance on the settlement payments, one assigns future payments to a third party in exchange for a percentage of the pledged payments. This lump sum advance can be invested into a higher interest rate vehicle that can provide for supplemental payments that will offset the inflation decreases. A good investment advisor would be able to help you figure out how to manage the advance to supplement future payments.

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