News and Tips on structured settlement transfers.

January, 2011

5
Jan 11

Understanding the Discount Rate

When soliciting bids for your structured settlement, you have probably seen that the amounts being offered as lump-sum purchases for your settlement are substantially less than the total of all the payments that are coming to you. If you’re wondering the reason for the difference, it’s the discount rate.

One way of describing the discount rate is to think of it as an interest rate in reverse. When you borrow money, the lender is charging you interest – an amount over and above the initial loan that you are paying them to compensate for your use of their money. Similarly, the discount rate is the amount that a structured settlement buyer is charging you to give you an advance on your settlement.

While this may seem unfair, think of it from the perspective of the buyer. In order to buy your structured settlement, the buyer has had to amass the lump sum of cash that he will be giving you; if he doesn’t have this cash on hand, he’s had to borrow it from somewhere else. Even if he does have the cash on hand, he is losing interest earnings on that money by giving it to you.

On top of this are the buyer’s operating costs. He probably has an office, with rent and staff that don’t work free. He probably has a few lawyers of his own – and they aren’t free, either. And, of course, he’s not in business to help you – he wants to make a profit.

So what kind of discount rate can you expect to give up when you sell? Well, there is no hard-and-fast rule. Discount rates can often be in the double digits. In 2010 a New York judge questioned one structured settlement agreement that had a discount rate of approximately 20%. You’ll probably have to appear in court to finalize any sale of a structured settlement, but don’t count on the judicial system to determine if a discount rate is reasonable. Once you see the offers you get – and you should always shop your note around to several buyers – you can use online calculators to determine the discount rate you’re being charged. Additionally, when you seek out legal and financial advice for your prospective sale, your advisors should be able to tell you if the discount rate you’re being charged is comparable to other deals they’ve seen recently. If it just seems outrageous – especially if they’re charging you other fees on top of it – it may be time to step back and reconsider whether selling your settlement is your best option.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

4
Jan 11

Three Killer Reasons to Buy Structured Settlements

Frustrated with the low interest rates available on conventional investments? Looking for a different way to make money? Interested in a better way to maximize returns at the lowest possible risk?

If so, consider buying structured settlements.

A structured settlement occurs when a plaintiff in a personal injury lawsuit (usually) is awarded a large sum of money for their injuries. Because the defendant usually can’t pony up that kind of cash in a hurry, he buys an annuity from an insurance company. This allows the plaintiff to get a certain number of payments of a fixed amount over a period of time.

But, sometimes, the annuitant needs a lump sum of cash up front, usually for medical expenses or some other financial emergency. When this happens, s/he may sell some or all of the payments to which she has been given the annuity. This is called a structured settlement factoring transaction, and here’s where you come in. Why buy such a thing?

Return on Investment. Structured settlement annuitants who are looking to sell need cash fast, and so are willing to accept a much smaller lump sum than the combined amount of all their payments. The discount rate – which you use to determine what you will pay the seller in cash – can get up to the double digits. This sets you up for an enormous rate of return over time, provided you have the ability to wait for the payments.

Steady Payments. Since the annuity payments are coming from an insurance company, the risk that you won’t get the payments you have bought is pretty low. As long as the insurer stays in business, you’re set.

Recessionary Economy. In the current economy, people are facing all sorts of financial difficulties, and these are what motivate sellers of structured settlements. Loss of a job, spouse’s loss of job, impending foreclosure, a need to go back to school, or medical expenses for the annuitant or a family member, are all reasons that an annuitant might be looking to sell his structured settlement at a deep discount.

What Buyers Should Know. This isn’t a risk-free investment for you, either. You’ll need cash to make the payment. Since this is a highly regulated transaction – nearly every state requires prospective sellers to get financial advice, and to wait out a “cooling off” period – you’ll need legal help, and there’s always the risk the seller could change his mind, or that the court might balk, before the deal is finalized. But even one successful deal might make it all worth the trouble.

4
Jan 11

Structured Settlements and Your Finances

If you have won a settlement as part of a personal injury lawsuit, you may find that it will be paid to you in installments rather than all at once; this is, of course, a structured settlement. The defendant will purchase an annuity, usually from an insurance company, which will make payments to you, usually on a monthly basis.

There are a few reasons why your settlement may be annuitized in this way. Of course, the defendant probably doesn’t have the full amount of your settlement on hand, so the annuity is the only way he can afford to pay it.

For the plaintiff, an annuity is designed to provide for his living and medical expenses for a period of time. This can be particularly important if the personal injury that gave rise to the lawsuit has left the plaintiff unable to work and earn a living. An annuity is also designed to protect the plaintiff from himself; that is, to keep him from spending down the entire settlement too quickly. If the annuity is to settle a lawsuit based on a personal injury, the annuity payments are tax-free.

Still, an annuitant may want or need to get a lump sum of cash up front. Some or all of the annuity payment stream can be sold to interested buyers in what is legally referred to as a structured settlement factoring transaction. If you are considering selling your annuity, you should make sure you have a compelling reason to do so, since you will receive much less in a lump sum than you would have received over the life of the annuity. The sale will have to be court approved, and the judge will want to know the reason you’re cashing out. Basically, it should be a financial emergency, repayment of debt, or some other pressing need that the sale of the annuity will resolve in full.

Selling your structured settlement in order to get a lump sum of cash to place in some other investment is likely not a good idea. Structured settlement buyers use what’s called a discount rate to determine how much they will pay you for your annuity. This discount rate can often be in the double digits, so unless you have an alternative investment that will beat that discount rate, you are better off staying with your original annuity. If you have found an investment that will beat that rate of return, it’s probably risky. Besides, there are often fees associated with the sale of your settlement, and that also eats into the amount you will receive.

2
Jan 11

Selling Your Structured Settlement – The Process

The details of the various steps of a structured settlement factoring transaction can vary a little by state, but generally the process looks like this.

First, shop around. Decide how many payments of your settlement you want to sell and get offers. Always shop your annuities to several companies. A site like QMAP makes this process very easy. It’s important not to disclose details of competing offers to the different companies you’re comparing. Also, check the reputability of the companies you’re considering. The Better Business Bureau is a great resource; if you see lots of complaints against a prospective company, reconsider.

Once you’ve signaled your acceptance of an offer, you will have to prove that the payments you’re selling are legitimate by providing a copy of your annuity policy or other supporting documents. The seller will then send you documents that spell out the terms of their purchase for you to sign. At this point, if you haven’t already done so, it is strongly recommended that you seek legal and financial advice regarding this transaction; some states even require it. Even after you accept the offer and sign all the documents, your state will likely require you to wait out a “cooling off” period during which you can change your mind.

At this point, the transaction will have to be approved by a court. Depending on your state, you may have to appear before a judge. The judge will look at the terms of the deal, especially the discount rate used to reduce the future payments you’re selling to the lump sum you will receive. Also be prepared to substantiate the reason for selling your structured settlement, such as medical or educational expenses, legal expenses, or repayment of debt.

The court-approved transaction will be forwarded to the insurance company to document the sale of your settlement. The buyer will then advance your funds to you.

The entire process will take somewhere around 45 to 60 days, depending on the state where you live. When checking the reputability of prospective buyers, you may find complaints that the buyer took longer to process the transaction than promised, and beware that some unscrupulous companies will drag their feet. Also, at each step of the process, re-check the terms of the agreement to ensure that the seller has not changed the amount of the payment or added in any fees – this is another common complaint against buyers.

Remember that selling your settlement is a very serious decision and shouldn’t be rushed. Give serious consideration to whether this is your best option.

1
Jan 11

Finding the Right Buyer for Your Structured Settlement

So, you’ve decided to sell your structured settlement, or lottery settlement, or some other installment payment that’s coming to you. You want to get the best deal, but how do you know who’s the best buyer?

Shop Around. Of course, always shop your note to several buyers. A website like QMAP makes this process easy by allowing you to publish the details of your settlement, and let the offers come in. This should be your mandatory first step.

Reputation. Once you have some offers in hand, it’s easy to see which one will get you the most cash. But you also need to consider the source. Is the prospective seller reputable? Can they be counted on to deliver what they’ve promised? If you look around the Internet for news articles, you will find plenty of stories of buyers who were burned in selling their structured settlements. To avoid being another dissatisfied customer, check the reputability of your prospective seller.

Check the Internet. A quick Internet search for the company’s name is not conclusive research, but it will give you an idea of complaints that have surfaced about the prospective buyer, and about his history. And don’t be sold just on a big name with lots of clients; some of the less prominent buyers might be start-ups who are genuine but don’t have the impressive resume.

Better Business Bureau. Go further in your search by checking the Better Business Bureau. It’s easy to trash a company online, but filing a complaint with the BBB takes a little more effort and should carry more weight in your evaluation. Common complaints against buyers of structured settlements are that they changed the terms of the agreement midstream; charged exorbitant or hidden fees; or that they took longer to close the deal than promised.

Details of the Deal. Once you’ve evaluated your offers and the prospective buyers, and chosen the one you’d like to work with, check the fine print of the deal you’re offered. You should always seek legal and financial advice in selling a structured settlement to make sure the deal is right for you. Look at the discount rate – the rate the buyers use to peel back your total settlement to the amount they are planning to pay you for it – to make sure it’s in line with other sales (your lawyer or financial advisor should be able to tell you how it stacks up). Look closely for any fees – court fees, legal fees, processing fees, or anything else, and be aware that it will be coming out of your settlement.

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