Downside of Structured Settlement Loans

Structured settlements are a way for a person, company or insurance provider to pay out awards won in a lawsuit over a period of time. This is usually done on a bi-monthly or yearly schedule. This prevents large losses due to the results of a lawsuit again that person, company or insurance provider.
If you do have a structured settlement you can opt to get a large sum payment; this is called a settlement loan. This is when a provider buys out your remaining structured settlement payments for one large sum. You can also get pre-settlement loans before a lawsuit case has even reached a verdict. You should know the disadvantages before deciding if it's right for you.
The main downside is taxes. The money that you would receive from the provider is considered taxable. You would have to pay applicable taxes at the current state and federal rate for that calendar year. You'll also be responsible for self employment tax; this is the tax self employed individuals pay since they are not getting social security and Medicare withheld from their income. You should be aware of all tax responsibilities behind your settlement loan before making any decisions. I'd suggest speaking with a financial adviser that has worked with settlement loans in the past.