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Settlement funding is the money made available to a plaintiff by a settlement funding company or attorneys fighting the case. Settlement funding may be a structured settlement or lawsuit settlement or life settlement. A structured settlement is the payment of money for a personal injury claim where all or part of the settlement calls for future periodic payments. Lawsuit settlements are settlements based on compensation cases. Life settlements are based on Life Insurance policies.
Lawsuit settlement funding may be pre-settlement funding or post-settlement funding. Usually persons are not directly funded by their lawyers, because State Bar Associations recognize that when a lawyer becomes a creditor or client, a conflict of interest is created that may interfere with the attorney-client relationship.
Pre-settlement funding is given in advance to a person who has filed a lawsuit and is waiting for the settlement amount. In post-settlement funding, a person who got a positive compensation verdict, but has not yet received the money, gets funds from a funding company in anticipation of his verdict amount distribution. Both of these are non-recourse funding. Pre-settlement funding involves considerable risk, is a complex process and the fee rate is also high, as the verdict amount is an assumed value. Post-settlement funding is simple and usually no risk involved and the fee rate is low, as the verdict amount is a known value.
Structured settlement funding does not depend upon the assumed strength of the settlement, as the settlement value is already determined. Moreover an annuity or government bond generally guarantees structured settlements.
Life settlement funding is advanced to qualified life insurance policy owners to liquidate a life insurance policy for an amount much higher than the cash surrender value. If a senior person owns a policy that is no longer needed or affordable, then the life settlement funding companies help him in selling his life insurance policy at a much higher price.