A Comprehensive Insight into Structured Settlement Protection Act
Structured Settlement Protection Act (SSPA) is a set of rules and regulations that have been established to safeguard the rights of structured settlement owners. Different states have their versions of SSPA, and over 42 states have explicitly enacted these laws. There is also a provision of the federal legislation that also tackles structured settlements and protection of recipients therein. But what exactly is a structured settlement, and why is there a need for a protection act you ask? This is a pivotal question to fully understand why the protection act is relevant, and the following information sheds more light in this regard.
The basics of a structured settlement
There are many unfair things that happen to people in life. Among others, one can suffer personal injury and even wrongful death. When these vices are caused by someone else, the victim can seek legal redress seeking for compensation. Once the victim wins a case in court, the person or party responsible for their suffering will be ordered by the court to pay a certain amount of money to cover the suffering caused to the victim. The person at-fault does not have to pay a lump-sum to the victim; they have the option of paying the compensation in bits, over an extended period through a financial tool referred to as - an annuity. An annuity can be issued by a life insurance company. The annuity contract ensures that the victim is paid their money over a longer period. This arrangement is called a structured settlement; you can read more about it here.
Structured Settlement Options
A recipient of a structured settlement can choose from several options on how they want to receive their money. First, they can go for the Time Certain option. This just means that the entire amount of money will be paid in equal amounts over a specified period. Recipients can also choose the Term Certain option. This means that the money will not be same all the time as agreed; the term or period to receive the money will be the sure factor. Life Only option is another form of structured settlement that sees the recipient receive money until they die. There are many other choices and elements that come with these structured settlements.
Why protection for structured settlements?
The need for security regarding structured settlements became of utmost importance in the 90s. These forms of settlements first came into being in the 70s. They became very popular because they catered to cases of physical injuries, workers' compensations and sickness. This long-term arrangement allowed the victims to cater to their needs in a manner that was manageable. However, the 90s saw an eruption of predatory companies who would buy off these structured settlements in exchange for lump sums of money. This trend saw many recipients sign away more than they bargained for. More so, the areas of transaction fees and discounts would see buyers hold the sellers at ransom leaving the recipients needy and exploited. Also, many sellers made haste decisions only to receive large sums of money that would be wasted in a short time.
To this effect, many states saw the need to protect the ignorant or uninformed structured settlement owner. In essence, the protection was meant to help the seller know or understand the consequences of their actions to make an informed choice; if they went ahead with the sale. Instances, where the sale of structured settlements makes sense, is when the seller wants to buy a home, pay for college, pay off a debt or make personal investments.
As alluded to earlier, different states made versions of their Structured Settlement Protection Act. One of the most notable protection clauses in many states is the need to have a judge approve a sale of the structured settlement. Different states have varied exceptions to this law. Below is a look at the general protections laid out in both the state and federal level.
Contents of the Structured Settlement Protection Act
- The first and perhaps most important requirement is the need for the seller to receive professional advice. Sellers should get advise on the pros and cons of having received a lump sum occasioned by the sale of their structured settlement. To this effect, no one will say they did not know the downsides if the transaction doesn't yield much. A seller also has the right to change their mind as desired within a certain time-frame regarding the sale.
- The seller has the right to get all the payment information and full disclosure thereof. The expense and fees incurred must be laid out clearly. In many states, a judge will determine whether the provisions of the sale are favorable to the seller economically.
- If the transaction is rejected by a judge, a federal excise tax of up to 40% will apply. There are many other restrictions and guidelines for different states and knowing what is relevant to you will help in making informed decisions.