Know Your Discount Rate When Cashing in Your Structured Settlement Payments

The Time Value of Money and Structured Settlement or Annuity Transfers

The terms annuity and structured settlement are frequently used interchangeably. A structured settlement is a defined payment schedule released to the recipient of a lawsuit in the form of a single premium immediate annuity (SPIA). Understanding the time value of money should clear up any confusion as to why you'd receive less money than your annuity is scheduled to pay out should you decide to sell your structured settlement payments. The present value of future money is determined by the number of payments or cash flows due to be paid out in a single lump sum and the discount rate being used in the transaction. A payment of 0,000 payable in 2 years is certainly valued higher than that same 0,000 payment due in 20 years assuming the same discount rate is used in each instance. It's a rather simple concept to understand. The longer it takes for an investor to recover his or her investment, the less money that future amount will be valued at today.

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Discount Rates Applied to Structured Settlement and Annuity Transfers

Anyone that is interested in cashing in an annuity should know the discount rate the factoring company is charging. For example (as of the date of this write-up) if you have a 0,000 payment scheduled for January 1, 2015 that you'd like to sell you'd receive ,763.55 using a 19% discount rate. Nevertheless, that same amount due on precisely the same date applying a 15% discount rate would net you 5,072.08. Variances in the discount rate can have a significant impact on what you would be given in a lump sum. In this prior illustration just a 4% difference equaled ,308.53! For that reason know what your discount rate is before you cash in your annuity and browse around for the best rate.

Use a Present Value Calculator to Check the Value of Your Annuity

You should utilize a present value calculator to determine what your lump sum payment would be at varying discount rates. For annuity transfers rates are usually anywhere from 10-25% thus it's wise to look around. There are numerous companies that invest in structured settlements and annuities; nevertheless several of them charge extremely high discount rates. Get the highest offer you can prior to cashing in. You may want to meet with an attorney and/or financial consultant prior to signing a contract just to make certain you are entirely knowledgeable of the terms of the exchange.

Length of Time to Complete a Transfer

Annuity transfers take an average of 2 months to complete. Essentially the process is: seller agrees to the offer for his or her structured settlement payments, seller signs the contract, lawyer files petition for a court hearing for the transfer of structured settlement payment rights, court hearing is scheduled, court hearing occurs, and the seller is funded with a lump sum presuming the judge approves the transaction. Certain states may be faster than others but the all around process is precisely the same no matter which structured settlement factoring company you choose. Single premium immediate annuities that don't stem from a lawsuit normally don't need to seek court approval. Generally these transfers can be achieved in as little as a couple of weeks. Generally these annuities were acquired as an investment or inherited. The annuitant may decide to cash in their annuity policy at some period for a lump sum. The amount offered may be a bit higher than with structured settlement annuities given that there are ordinarily no legal fees or legal work associated with the transaction.

Know Your Discount Rate When Cashing in Your Structured Settlement Payments