Structured Settlement Buyer Accounting
Principles of finances govern how a structured settlement buyer prices the offer they make to buy your annuity payments from a lawsuit. You may be curious how this works and what your “rate” is when selling future payments. We think therefore it is helpful to provide an example that may serve as guidance at best and at the very least educate you by giving you enough information to ask the pertinent questions.
Because structured settlements vary so much it is hard to create an example that will be fully analogous to your situation. That said, the same principles set forth in the below example will translate regardless if you are selling monthly structured settlement payments or future lump sum payments. Of course, other variables come into play and we caution you to shop around when receiving any offer from a structured settlement buyer.
With that preface complete, lets start with a person with a structured settlement payment due in 8 years that has a “face” value of $135,000. This imaginary structured settlement lump sum may be due from a host of annuity issuers like New York Life, Metlife, Genworth (a/ka GE Capital), Aegon (a/k/a Transamerica) or Pac Life (a/k/a Pacific Life). For purpose of calculating the numbers below we will assume that today’s date is December 10, 2014.
Obviously, your $135,000.00 dollar lump sum structured settlement payment due in approximately 8 years (i.e, 2022) is not worth $135,000 and no structured settlement buyer can pay you the full amount of the face value of the payments notwithstanding its due date. Instead, you have to assume you are going to receive a “discounted” amount in exchange for selling your structured settlement for cash today. What is the discount? What will a structured settlement buyer pay you? What is the rate that is used to calculate an annuity buyout? Well, we are going to provide you some information that may be helpful.
The rate that a structured settlement buyer offers to discount your payment buy will control how much they pay you.
1. 12% rate = Slightly over $60,000.
2. 10 % rate= Slightly over $68,000.
3. 9% rate= Slightly over $73,000.
As you can see, as the rate goes down, the purchase price or valuation of your structured settlement increases. At a 10% rate you are looking at getting more than 50% of the face value of that $135,000 lump sum payment. We are referring to effective rates in this article and not nominal rates.
At CSF, we strive get you the most amount of cash you have been offered for the sale of your structured settlement. Call us with your best offer and let us beat it