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Springing forth as a result of the invention of the state lottery, the lump sum industry has emerged as a means of offering an alternative when lottery winners find themselves in financial hardship between payments received from the lottery. A number of financial lenders have developed programs that provide coverage of outstanding debts in exchange for a claim upon future disbursements that would have gone to the winner.
In many ways, the lump-sum industry serves as a crisis safety net for lottery winners that become a little too enthusiastic with their new financial status. Upon winning the lottery, many people begin to make purchases that they never would have considered otherwise. The assumption is that the money to cover all the new expenses is forthcoming in time, and the debt will eventually be covered. However, many lotteries pay out winnings in a series of payments, often monthly, bi-monthly, or annually. The end result is that a lottery winner can run up a great deal of debt that comes due before enough funds are received to cover the expenses.
This is where the instigators of the lump sum industry come into play. In exchange for signing over rights to future disbursements, the lottery winner receives a lump sum that will cover all those debts. Unfortunately, many lottery winners fail to notice that in signing over those rights, they end up losing a large share of their winnings. Rather than simply returning some of the acquired items, or seeking traditional means of financing the purchases, consumers go for the quick fix and ultimately lose a great deal of money.
Critics of the lump sum industry complain that while the process is perfectly legal, many of the companies that fund these lump sum payoff purchases take advantage of people who have made poor financial decisions. While they do provide funds that allow the lottery winners to cover their current financial obligations, it is at the cost of the future financial stability of the individual. Supporters of the lump sum industry note that the process allows people to pay off their outstanding obligations, and often leaves them with no home or car loans to pay off. While the cost is all the future lottery payments, the individual still has a few things to show for winning, and at least is able to start fresh with no outstanding debt.
The same general principles of the lump sum industry have begun to be applied to individuals who have won a huge settlement in a legal dispute, but need immediate cash to handle living expenses or medical bills. In exchange for a lump sum, all rights to future payments on the settlement amount are diverted to the institution that issued the lump sum payment.