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If you are the victim of an injury, or have filed a tort claim against a company, instead of receiving a lump sum from said company, you can agree to a structured settlement, where you would receive an annuity for a set number of years.
Now, without seeing the numbers, I would say that having $1 today is better than hopefully having $2 tomorrow. Here are a few reasons why.
- I can invest my money as I please.
I am no expert in investing but at least I would be free to make my own mistakes. I would probably pay debt, and save quite a bit on interest, then buy a house to live rent free and invest the rest in different assets. Having just an annuity may cover living expenses year after year but leave no room for improvement. I can turn my lump sum into passive income that may one day be greater than the annuity!
- I don’t negotiate like they do
We are talking about a company that did me enough wrong to be willing to pay me yearly for the rest of my life, or many, many years. That has to be a lot of money. And they have amazing lawyers to make sure I get as little money as possible. If they try to push for an annuity, it means I am probably better off with a lump sum.
- I don’t know how long I will live
What if I die tomorrow? My heirs could inherit my lump sump while I doubt my annuity would be passed on to them. Since we are talking about injuries, or birth defects from taking pills, and other kind of physical harm, I may not live until I am 90. Getting the money now is a safer bet.
- I don’t know how long the company will be around.
I get that a multi million settlement is usually peanuts for a company, but what if they go bankrupt and suddenly can’t pay my annuity?
- Inflation reduces my annuity
Even with low rates of inflation, $1 today is worth about $1.02 in a year. I would rather have less today and inflation-proof my investments.
If you already have an annuity, there are options to sell your annuity for a lump sum.
You may not get such a good deal as the first time around but if you want to dispose of more cash today, it can be a good option.
Now what would I do with $1000000? Good question, I don’t think my life would change much, actually. Well, on second thoughts it would depend of the kind of wrong that company did me. I guess I would still want to live a simple life, costs may go up with medical care, but otherwise I don’t dream about fancy this and fancy that, pretty happy to be where I am!