The merits of staged settlement loans
By AdvocateDaily.com Staff
Personal injury victims who need financial assistance while waiting for their insurance claim to be resolved are better off receiving a loan in stages rather than a lump sum, says Dawn Simons, client relations manager at CaseMark Financial.
“Clients are going to end up saving money in the long run when they take a staged settlement loan over a lump-sum loan,” she says.
The financial services company focuses on providing litigation funding for the personal injury market through such services as pre-settlement lending, post-settlement funding, monthly staged loans for living expenses, treatment financing, disbursement funding and term sheets.
“We provide loans to victims who have been involved in some sort of personal injury and have a pending claim. Until such time as there’s a resolution with an insurance company — whether that be a trial verdict or a settlement — they often require financial assistance to see them through because in many cases they’re unable to work, or insurance benefits have been terminated,” Simons says.
“They have no cash flow coming in, and traditional credit agencies or a bank will not advance funds. Credit cards are usually maxed out and their credit scores may be ruined. Sometimes they’re on social assistance and there’s a significant shortfall in actual money coming in compared to what they were accustomed to spending pre-accident.
"So they turn to CaseMark Financial to alleviate some of those financial pressures.”
While a lump-sum loan can provide financial security for several months, it’s important to recognize that the calculation of interest begins immediately on the full amount, Simons tells AdvocateDaily.com.
With a staged settlement loan, a client receives smaller amounts on a monthly basis, spread out over a longer period of time, and “interest only starts to accrue on the amount that’s actually advanced at the date it’s advanced,” she says, saving the client a considerable amount of money.
“Another advantage is that a staged settlement loan helps control cash-flow predictability,” she says, adding that human nature being what it is, clients may think they can stretch out a lump-sum payment over several months, but “as is inevitable in life, expenses come up and that cash is depleted faster than expected.”
To illustrate the different approaches, Simons uses the example of a $10,000 loan. If a client chooses to take the money as a lump sum, “we’ll just transfer that money over to them immediately. They’ll spend it on whatever they see fit. We can structure that directly to the client, to a service provider or to the law firm in trust to be disbursed as needed. But the interest will start ticking immediately on the full $10,000,” she explains.
“What we often find is that $10,000 is actually intended to be used over a number of months or some period of time. So perhaps the client’s monthly expenditures are $2,000 and that $10,000 is really intended for five months. We can structure a program where we’ll advance $2,000 on the first or 15th day of every month for five months.”
With the staged settlement loan approach, “the actual cost of borrowing would be significantly less,” Simons says, noting that unlike other lenders, “We don’t charge any additional fees or recurring charges or add an administration fee for structuring it as a staged loan.”
If an insurance claim hasn’t been resolved by the time the initial loan period expires, a client is free to apply for followup funding if needed, she says.
“What we find out sometimes is a portion of their claim resolves or perhaps insurance benefits get reinstated, or some social assistance may kick in, so it’s really all case by case, and dependent on the facts and the individual scenario. But just because we commit to a certain time period does not make that set in stone. It’s just a starting point and it’s to help manage the expenses,” Simons says.
“We always review it based on the merits of the case. So if we feel that the loan is warranted, we have no hesitation structuring it.”