The Discount Rate Will Determine the Lump Sum You'll Receive Should You Sell Your Structured Settlement Annuity

Know the discount rate you're being charged when selling a structured settlement annuity. If you think you may want to sell your structured settlement annuity make sure you know what discount rate you're being charged. Quite simply the lower the rate, the more money you will receive in a lump sum. Factoring companies that purchase structured settlement annuities will place a discount on the aggregate amount of payments being sold. Aggregate is just a fancy word for total. If you want to sell your structured settlement annuity, find out what discount rate you're being charged.

Discount Rate on Lump Sum Payments

Let's say the total amount of payments being sold is a single $100,000 lump sum payment due on January 1, 2021. If you were to sell that payment to a factoring company that charges you a 15% discount rate, you could expect to receive $25,129 as of the date of writing this article. On the other hand, if you were to be charged a discount rate of 11% you would receive $35,654 for the exact same payment due on the exact same day. That's a whopping difference of $10,525! Some companies may try and fill your head with the notion that other companies won't be able to fund your transaction or that their operation has some specialized procedures or attorneys in place to get your transaction approved. They may attempt to discredit other annuity purchasers by bad mouthing them. Don't fall for it. Get the most money you can period. Remember, the court process of cashing in your structured settlement annuity is the exact same no matter what company you choose. All transactions must be approved by a judge in court and all companies will have an attorney represent you at the hearing. Naturally you should check out which ever company you decide to do business with and have an accountant, attorney and/or financial advisor go over the terms of the contract with you to make sure you understand the structured settlement transfer agreement. The discount rate being charged will determine how much money you'll receive should you decide to sell your structured settlement annuity.

Discount Rate on Monthly or Periodic Payments

Monthly or periodic structured settlement annuity payments are discounted in the same way as lump sum payments. These are called periodic cash flows. The only difference is that each periodic payment has a unique due date as opposed to a future single lump sum payout. For example, a monthly payment of $1,000 due on January 1, 2021 will always be worth more than the next consecutive monthly payment of $1,000 due on February 1, 2021 simply because it's closer to the present date. Consequently that $1,000 monthly payment due on February 1, 2021 will be worth more than the next consecutive monthly payment of $1,000 due on March 1, 2021 and so on. This illustrates the time value of money. You can use a present value calculator to figure out how much you would receive on a certain number of cash flows discounted at a particular rate. In case you're not aware, 10 years of payments would equal 120 months, 20 years of payments would equal 240 months, 30 years of payments would equal 360 months and 40 years would equal 480 months. Other periodic annuities may be paid annually, bi-annually, or quarterly, however the most common periodic structured settlement annuities are paid monthly or by way of occasional lump sum payments every few years or via a mix of both.

Make Sure You Receive a Net Offer for Your Structured Settlement Annuity

If you think you want to sell your structured settlement annuity make sure you're provided with a net offer from the structured settlement annuity purchaser. There are a couple points you need to consider. First of all ask the funding company if you are being charged any legal fees or fees of any sort. Also, don't just take their word for it. Make sure that whatever was disclosed to you verbally is also in the contract. Keep in mind to choose the best net offer and not necessarily the best “number” you heard. If a company is offering you a $50,000 lump sum payout but in addition is charging you $1,500 legal fees then you're only going to receive $48,500. That is the figure you should be concerned with. In this case you’d be better off going with a company that offers you $49,000 with no fees whatsoever. Some companies choose to charge legal fees and others don't. It really doesn't' matter, neither is better nor worse than the other, just look at the net amount being offered to you. Some states require that you receive independent advice from a professional such as an accountant, attorney or financial advisor before you’re allowed to sell your structured settlement annuity. In these cases you’ll most likely have to pay some type of fee to that professional. This amount will usually be deducted from your lump sum purchase price. Fees to review contract terms can range from $100 to as high as $1,000 and many times vary by state or whether you live in a rural or metropolitan area. Therefore if you reside in a state where this advice is mandatory be aware of the fee being charged.

The Importance of the Start Date on the Sale of Current Monthly Payments

One last thing to consider is the start date on the sale of current monthly structured settlement annuity payments. Let's assume the following:

• Today's date is April 1, 2011
• Your annuity payments are due on the 15th of each month
• You want to get a quote on selling the next 10 years or 120 payments of a $500 monthly annuity check

Some companies may give you a quote based with a start date of April 15, 2011; in other words 14 days from “today’s” date. The problem with this is that your transaction won't be completed by then. This unethical tactic allows the company to quote you a higher price than a potential competitor but make no mistake; they will deduct whatever monthly payments were sent to you during the transaction. So if they offered you $50,000 but 3 and half months passed, then you'd only get $48,500 since they did not receive April, May or June's payment. Typically you can expect to wait at least 45 days or more before you receive your lump sum payout regardless of what company you choose with the average time probably being closer to 60 days. Some states have a quicker processing time than others. Remember this is a court ordered process. Notices have to be sent to all parties, disclosure waiting periods have to be adhered to and the county court must have a date available on its calendar. Therefore it's better to receive a quote from a company that pushes the start date out a few months from the time a quote is requested on current monthly payments so there are no surprises in the end when it comes time to fund your transaction. If you were to seek a quote from Corona Capital in April of 2011 on current monthly payments, we would push the start date out till at least July if not August of 2011 meaning you would still receive the next 3 or 4 payments directly from your insurance company just as you normally do. This gives plenty of time for the entire process to take place before your first payment is due to be assigned. If the first assigned payment was slated for August 15, then you would have already received 4 monthly payments of $500 or $2,000 that we did not purchase. Keep that in mind. Just compare apples to apples. Tell the funding company the date on which you'd like to have your first payment assigned and make sure to push it out a couple months. Doing this should also prevent insurance companies from "holding" payments. This can happen when the first assigned payment date is too close to the hearing date. The insurance company is not sure where to send the payments so they hold them until a court order is granted approving the transfer. To learn more about the actual process of how to sell a structured settlement annuity, please review this article.

Articles Regarding the Sale of Annuity, Lottery, Structured Settlement and Life Contingent Structured Settlement Payments

• Get a Quote Before You Sell Your Annuity or Structured Settlement
• How Much Money Will You Get Should You Sell Your Structured Settlement Annuity?
• How to Sell a Structured Settlement Annuity
• How to Get Life Insurance to Protect a Life Contingent or Non-Guaranteed Structured Settlement Annuity Transfer
• Know Your Discount Rate Before You Sell a Structured Settlement Annuity
• Sell Your Annuity
• Sell Your Life Contingent Structured Settlement Annuity Payments
• Sell Your Lottery Payments
• Should You Sell Your Structured Settlement Annuity?