Insurance World

Just because you have received a structured settlement for your lawsuit or insuracne claim, it does not mean you have to wait years to get the money you have comming to you. There are several settlement purchasing companies that will give you quick cash for your structured settlement. Such companies can pay cash for your entire structured settlement or purchase your remaining settlement payments. You can spend this lump sum payment on anything you wish such as a house, college tuition, business investments or debts.

What Is a Structured Settlement?

A structured settlement typically results from a personal injury lawsuit. This is an agreement where you agree to accept periodic payments over time in exchange for the release of liability of your claim. A structured settlement can provide payments in almost any manner that you choose. An example is a settlement that may be paid in annual installments over a number of years. Another is getting settlement payments in periodic payouts every few years.

These kinds of payments are generally awarded through the purchase of one or more annuities from a life insurance company. Structured settlements can also be given with lottery winnings, contest prize money and any other situation where there is a substantial cash award.

Structured Settlements May Not Always the Best Fit

Structured settlements are designed to provide some long-term financial security to injury victims through payments that are tax free. For most people, the agreed upon structured settlement payment plan initially makes sense. However if a financial emergency, business opportunity, unforeseen medical expense, or a house purchase can put a strain on the injured party’s finances.

In this case the structured nature of the settlement may get to be too restrictive to cover major financial purchases. A structured settlement may also not be the best option for investing. There are several other investment vehicles that can generate far greater long-term return than the annuities that are used in structured settlements. Therefore, some people may be better off getting cash for their structured settlement payments and then begin building their own investment portfolio.

How Getting Cash for a Structured Settlement Works

If you receive an award from your injury case, your attorney or financial advisor may very likely recommend getting periodic installment payments versus giving you a lump sum of cash up front for your structured settlement. Then an independent third party can purchase an annuity that will provide you with tax-free periodic payments.

Companies that will offer cash for structured settlements have a variety of programs that will allow you to access any portion of your annuity. For an example, you may want to sell as few as four year’s worth of payments and receive a lump-sum payment while still enjoying some portion of your monthly payments. Or you could even sell your settlement for a large payment that is five or six years in the future. You could also customize an arrangement to get cash for a structured settlement based on your own unique needs.

Here is an example of how obtaining cash for a structured settlement works: Let’s say you were in an accident seven years ago. The accident caused you to be hospitalized for several months and undergo nearly a year and a half’s worth of physical therapy. So you hire an attorney and sued the responsible individual-or, rather, the person’s insurance company. Ultimately, your attorney advises you that you will be awarded a substantial sum of money.

After several months or years of negotiation, you receive a very nice sized settlement. However, the cash you will get upfront is only enough to cover the medical expenses you have accumulated. The rest of your compensation is scheduled to be paid out in regular installments through an annuity over the next 15 to 30 years. Instead of being restricted to a monthly or annual payments, you choose to contact a settlement purchaser to secure immediate cash for your structured settlement. You’re then able to use that cash to enhance your current cash flow-rather than waiting on periodic settlement payments.

The Legal Issues of Receiving Cash for a Structured Settlement

If you’re thinking about getting cash for your structured settlement, it’s important to contact a financial advisor. Most states have specific regulations that can limit the sale of structured settlements, so you will need court approval to receive cash for your structured settlement. Federal restrictions can also affect the sale of structured settlements to a third-party individual. Some insurance companies won’t transfer annuities to third parties.

Also, before you even try to obtain cash for a structured settlement, be sure to do your homework. Make sure to check out multiple companies to see which one can offer you the most cash for your structured settlement. You may also want to examine their integrity, reputation and track record. This will help ensure you have the most positive experience obtaining cash for your structured settlement.

Receiving cash for a structured settlement can very well be an ideal option if you need a lump sum of money to satisfy your immediate needs.

Health Savings Accounts are an excellent way to build a second retirement account. These tax-favored accounts, which have only been available since January of 2004, can be opened by anyone with a qualifying high-deductible health insurance plan. Once you open an HSA account, you can place tax-deductible contributions into it, which grow tax-deferred like an IRA. You may withdraw money tax-free to pay for medical expenses at any time.

The biggest reason more people don’t retire before age 65 is lack of health insurance, and many Americans reach age 65 woefully unprepared for the medical expenses they’ll face once they do retire. One of the most important long-term reasons for establishing an HSA is to build up some money for medical expenses incurred during retirement.

Fidelity Investments reports that the average couple retiring in 2006 will need $190,000 to cover medical expenses during retirement. This assumes life expectancies of 15 years for the husband and 20 years for the wife.

HSAs are, without exception, the best way to build up money to pay for medical expenses during retirement. You should not contribute any money to your traditional IRA, 401 (k), or any other savings account until you have maximized your contribution to your HSA. This is because only health savings accounts allow you to make withdrawals tax-free to pay for medical expenses. You can take these distributions anytime before or after age 65.

Your HSA contributions won’t affect your IRA limits — $3,000 per year or $3,600 for those over 55. It’s just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

For early retirees who are healthy, a health savings account can also be a smart option to help lower their health insurance costs while they wait for their Medicare coverage. The older someone is, the more they can save with an HSA plan. For many people in their 50’s and 60’s who are not yet eligible for Medicare, HSAs are by far the most affordable option.

Any money you deposit in your health savings account is 100% tax-deductible, and the money in the account grows tax-deferred like an IRA. For 2006, the maximum contribution for a single person is the lesser amount of your deductible or $2,700. In other words, if your deductible is $3,000, you can contribute a maximum of $2,700; if your deductible is $2,000, then that is the maximum. For families, maximum is the lesser of $5,450 or the deductible.

If you’re 55 and older, you can put in an extra $700 catch-up contribution in 2006, $800 in 2007, $900 in 2008, and an additional $1,000 from 2009 onward. The contribution limit is indexed to the Consumer Price Index (CPI), so it will increase at the rate of inflation each year.

How much you accumulate in your HSA will depend on how much you contribute each year, the number of years you contribute, the investment return you get, and how long you go before withdrawing money from the account. If you regularly fund your HSA, and are fortunate enough to be healthy and not use a lot of medical care, a substantial amount of wealth can build up in your account.

Health savings accounts are self-directed, meaning that you have almost total control over where you invest your funds. There are numerous banks that can act as your HSA administrator. Some offer only savings accounts, while others offer mutual funds or access to a full-service brokerage where you may place your money in stocks, bonds, mutual funds, or any number of investment vehicles.

One of the biggest advantages of retirement accounts like HSAs are that the funds are allowed to grow without being taxed each year. This can dramatically increase your return. For example, if you are in the 33% tax bracket, you would need a 15% return on a taxable investment to match a tax-deferred yield of only 10%.

As another example, if you are in a 33% tax bracket and were to invest $5,450 each year in a taxable investment that yielded a 15% return, you would have $312,149 after 20 years. If you put that same money in a tax-deferred investment vehicle like an HSA, you would have $558,317 - over $240,000 more.

Because catch-up contributions are allowed only for people age 55 and older, if one or both of you are under age 55 you should establish your HSA in the older spouse’s name. This will allow you to capitalize on the expanded HSA contribution limits for people in this age range and maximize your HSA contributions. Once that person turns 65 and is no longer eligible to contribute to their HSA, you can open another health savings account in the younger spouse’s name.

Strategies to Maximize your HSA Account Growth

If your objective is to maximize the growth of your HSA in order to build up additional funds for your retirement, there are three important strategies you should implement.

Strategy #1: place your money in mutual funds or other investments that have growth potential. Though this is riskier than placing your money in an FDIC-insured savings account, it is the only way to really take advantage of the tax-deferred growth opportunity that an HSA provides.

Strategy #2: delay withdrawals from your account as long as possible. Though you may withdraw money from your HSA tax-free at any time to pay for qualified medical expenses, you do have the option of leaving the money in the HSA so that it continues to grow tax-free. As long as you save your receipts, you can make medical withdrawals from your account tax-free at any future date to reimburse yourself for medical expenses incurred today.

As an example, let’s say a 45 year old couple places $5,450 per year in their HSA over a period of 20 years, they have $2,000 per year in qualified medical expenses, and they get a 12% return on their investments. If they withdraw the $2,000 from their HSA each year, they’ll have a net contribution of $3,450 per year into their account, and they’ll have $248,581 in their account when they begin their retirement years.

If on the other hand they delay withdrawing that money, they will have $392,686 in their account at age 65. If they choose they can withdraw the $40,000 to reimburse themselves tax-free for the medical expenses incurred during that 20 year period, and still have $352,686 in their account - over $100,000 more than if they had withdrawn the money each year.

Strategy #3: make the maximum allowable deposit to your HSA at the beginning of each year. Even though you are allowed until April 15 of the following year to make deposits to your HSA, you should take advantage of the tax-free growth in your account by funding it as soon as possible. The extra interest you can earn by contributing to your account on January 1 of each year rather than the next April 15 can amount to over $40,000 in a 20 year period, and over $100,000 in 30 years.

Using Your HSA to Pay for Medical Expenses during Retirement

When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “Medigap” policy.

Though Medicare will pay for the majority of health expenses during retirement, there many be expenses that Medicare will not cover. Nursing home expenses, un-conventional treatments for terminal illnesses, and proactive health screenings are all examples of medical expenses that will not be paid for by Medicare, but that you can pay for from your HSA.

Long-term care is assistance with the activities of daily living, such as dressing, bathing, or feeding yourself. It can be provided in your home, a retirement community, or a nursing home. Long-term care expenses can be paid for using funds from your HSA, and long-term care insurance can even be paid for from the HSA up to the following maximum annual amounts:

- Age 40 or under: $260
- Age 41 to 50: $490
- Age 51 to 60: $980
- Age 61 to 70: $2,600
- Age 71 or over: $3,250

To establish a health savings account, you must first own an HSA-qualified high deductible health insurance plan. Compare HSA plans side by side to determine the best value to meet your needs. Once you have your high deductible health insurance plan in place, you can open your Health Savings Account with the financial institution of your choice.