The Difference Between Lump Sum and Annuity — All The Top Facts


How to sell a structured settlement

If the average person looks forward at what will happen in their lifetime, they probably see certain events and everyday occurrences — there will be weddings and new jobs, and there will be pills to pay. What many people won?t foresee is having to know the the difference between lump sum and annuity — yet it will affect millions of people every year.

So what exactly happens to people that requires them to understand these terms? There are a variety of life situations that can happen. A court case, for example, can often lead to receiving an annuity in the form of a settlement payout. You could end up going to court for anything from divorce, to an auto accident, to hospital malpractice, to a medical injury at work — and all these things likely happen more often than you believe. It might take months or years for these issues to resolve themselves, but when they do, you?ll be receiving a payment. You might also be lucky enough to win the lottery, or something similar — in which case you?ll typically be offered the choice of a lump sum or an annuity.

So what, exactly, do you need to know?

What?s the Main Difference Between Lump Sum and Annuity?

All in all, a lump sum is typically paid out all at once (a ?lump?) in the beginning, while an annuity is paid out over time. Many lottery annuities pay out in larger percentages over time, as well — so it may or may not be the same amount year after year. This typically benefits the issuing company, leaving you to deal with the result of inflation. On the other hand, when you receive a lump sum you are typically only given an overall percentage of the total worth of the settlement, etc. You lose money in the beginning in order to receive your money right away, to do whatever you want with it.

Can you always opt for a lump sum?

Even if it?s in your best interest to opt for a lump sum payment and forgo a structured annuity payout, you don?t always get a choice. It typically depends on the issuing institution (sometimes, for example, they might simply not have this money on hand yet — hence the decision to pay it in installments. Others, like lotteries, sometimes will only issue annuities since it?s frequently in the winner?s best interest not to receive it all at once).

Can You Sell Annuity Payments?

In most situations, yes. Sometimes you?ll need to have this approved by a judge before moving forward (you may, for example, have to explain that you are using the money for a new car, a new house, or to pay off existing loans: all of these situations are usually deemed acceptable).

So: now that you know the difference between lump sum and annuity, have you decided what to do? Let us know what you’re planning, and why.

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