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4 Terms To Know Before You Sell Your Structured Settlement: Discounted Value

In this series, we’re discussing the four basic terms you need to be familiar with before you sell all or a partial structured settlement. Understanding these terms is paramount to ensuring you receive a fair offer for your settlement. We purposely discussed the time value of money and the present value of money before tackling the next term, discounted value. The discounted value is the amount in today’s dollars of future cash flow payments. This value is calculated by using the discount rate to estimate a present value. The lower the discount rate, the larger the lump sum offer you will receive for future payments. In this post, we will discuss how potential buyers evaluate future cash flow payments to determine discount rates. Currently, discount rates vary widely from 7% to 19% percent depending on the buyer. The discount rate applied to any structured settlement will depend on how many payments remain and the length of time left to receive the full payout. The further out the payout is the larger the discount rate because the potential buyers will have to wait longer to receive the money. They will perform an analysis based on their own financial health and how much risk they can tolerate. Additionally, potential buyers will pass on the standard costs associated with purchasing a structured settlement to the seller. Standard costs may include filing fees, court costs, lien search fees, and other miscellaneous transfer fees. This part of the discount rate is also referred to as the “cost of money”. Unfortunately, some potential buyers will use this as a means to encourage the seller to sell more than what they actually need to sell. Because each potential buyer uses different factors to evaluate the transaction to determine the discount rate, the seller should receive quotes from multiple buyers to effectively determine a competitive offer. To ensure you receive the best offer possible, avoid disclosing one potential buyer’s offer to another.

The following example illustrates how varying discount rates significantly impact the discounted value a potential buyer will offer:

Future Value Number of Payments Discount Rate Discounted Value
$50,000 10 8% $33,550
$50,000 10 14% $26,081
$50,000 10 18% $22,470

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.

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