If you're looking for a unique investment opportunity, you might try a new option: Investing money in personal injury lawsuits.
Lawsuits, especially those against insurance companies, can take a long time to settle, but they are often financially lucrative. While there are statistically fewer claims paid out now than in years past, those claims are for more money. In fact, the average cost per paid liability claim climbed 32.1 percent between 2005 to 2013.
How Lawsuit Investments Work
In a lawsuit investment scenario, you lend a small amount to a plaintiff in a personal injury lawsuit. That person uses the money to pay his or her expenses, medical costs, etc., while the case is in the settlement process. When the case does finally get settled, you get back what you loaned plus interest.
With more money at stake, insurance companies are often more interested in settling for a lower amount as soon as possible. So by taking investor money, the plaintiff can hold out for a larger settlement, which can take months or even years, because he or she is no longer desperate for the money to pay bills. The plaintiff comes out ahead, and some of that "bonus" money goes to the investors who loaned money upfront.
What's the Appeal in This Type of Investment?
Personal injury lawsuits often do produce some return, so investors are likely to get at least their initial investment back.
The other appealing part of investing in lawsuits is that the return has little to do with economic conditions. Returns don't fluctuate based on the stock market or the price of commodities, so they make a good component in a balanced investment portfolio.
Is Lawsuit Investing Ethical?
There are some ethics regulations in play with this type of investing. In the U.S., personal injury attorneys are not permitted to share fees with investors who are not lawyers themselves. Plus, many states prohibit plaintiffs from outright selling their legal claim.
To skirt these restrictions, a lawsuit investment is usually considered to be a loan, and returns are based on when a case settles and the amount it settles for. Some companies that offer these investments are moving toward a single interest rate that investors get, no matter when the case finally closes. And, money returned to investors is then not considered part of the lawyer's compensation or fees.
How Do You Know if a Plaintiff Will Win His or Her Lawsuit?
Lawsuit investing is sometimes criticized as gambling; after all, there are no guarantees that a plaintiff will make money as part of his or her case. Part of the service that companies offering these investments provide is analysis of the case and whether it is likely to produce a return.
If you are considering investing in a personal injury lawsuit, it might be a good idea to retain your own attorney to act as a guide through the process. You can also hire a company that specializes in this type of investment. Talk to your lawyer to get more information.