News and Tips on structured settlement transfers.

While the idea of selling a structured settlement for a lump sum of cash is undeniably attractive, you should understand what will be involved in the sale of your structured settlement before you dive in.

The Discount Rate.  If you’ve gotten offers to sell your structured settlement, you may have been taken aback at how much less you’re being offered versus the face amount of the payments you are selling.  This is because of the discount rate.  The discount rate is a percentage applied to your stream of structured settlement payments that allows the buyer to calculate the lump sum he will offer you.  This discount rate is intended to cover all of the structured settlement buyer’s costs of the transaction, his overhead (office and staff costs), and, of course, his profit.  Think of it as interest in reverse; if you borrow money, you pay interest in order to use someone else’s money.  So, when you get a lump sum, you are paying a discount rate in exchange for the ability to get the use of your money now, instead of having to wait.

Fees and Charges.  The discount rate, as noted earlier, is intended to cover the buyer’s costs.  This includes the cost of processing your deal.  So, if the buyer tries to charge you a “processing” or “handling” fee in excess of the discount rate, this should be a red flag to you.  You should not have to pay extra fees to sell your structured settlement.

Shop Around.  Don’t be seduced by the initial offer on your structured settlement.  You should always get competing offers from several different companies.  A great way to do this is to use a site like www.quotemeaprice.com, where you can advertise the terms of your settlement and what you want to sell, and let competing buyers give you their best offers. 

Check Out Prospective Buyers.  A simple Internet search of any buyers you’re thinking of using can yield other sellers’ complaints about them.  And, always make sure to check out prospective buyers through the Better Business Bureau.  A typical complaint about structured settlement buyers is that they change the terms of the deal after the initial offer, so be on the lookout for a company trying to do this to you.  Sometimes a company will float a high offer just to get your business, only to cut it down later.  A company may even retract their offer altogether, if they’ve decided that they won’t make enough profit on it.

You should give serious thought to whether selling your structured settlement is the best choice for you.  But if you’ve given it lots of consideration and decided that it’s your best option, here are some potential pitfalls to look for.

Don’t Be Sold on the First Bid.  You should use a site like www.quotemeaprice.com to get bids from competing structured settlement buyers.  Even if the first offer you get is attractive, always get comparative offers.  Don’t let the competing bidders know what the others have offered.  This will ensure that you get independent, objective bids.

Make Sure the Buyer is Reputable.  You’ll likely get bids from the big, well-known players in the structured settlement business, as well as some lesser known bidders.  You should check out all of the bidders that you’re considering using.  Check them out with the Better Business Bureau to see what kinds of complaints have been filed against these companies, and how or whether they’ve been resolved.  Typical complaints are that the structured settlement buyers changed their offer after the initial bid; took longer than promised to complete the sale; or tried to sneak in extra fees and charges.  If you see lots of the same complaints against a structured settlement buyer, you should consider it a red flag, and consider using a different buyer.

Read Everything.  Look over any documents you get thoroughly to ensure that the structured settlement buyer you have chosen is honoring his bid to you, and that he is not trying to add extra fees or charges to the purchase of your structured settlement.  The buyer’s discount rate – the rate by which the structured settlement buyer is reducing the face value of the payments you are selling to the lump sum he is willing to give you – should cover his costs, so if the buyer is trying to tack on processing or handling fees, back out of the deal.  Ask lots of questions and make sure you thoroughly understand what you’re agreeing to.  If the buyer becomes defensive, refuses to answer your question, or tries to convince you that you’re stupid for asking, back away from the deal.

Beware Suspicious Promises.  Most structured settlement purchases take at least 45-60 days to complete, so if a buyer says he’ll get it done sooner, he’s probably making a promise he can’t keep. 

Beware Excessive Pressure.  If anything about the deal doesn’t seem right, if the buyer seems to be changing terms on you or adding fees, you should not sign off on the deal.  The buyer may try to play upon your fears to get you to sign, or may use scare tactics.  Take a step back and don’t let yourself be unduly pressured.

The TV ads are enticing.  They tell you to sell your structured settlement and get cash now!  But how many of these promises are actually true?

Get Cash Now!  Beware any structured settlement buyer that promises to complete the sale of your settlement in less than 45 days.  All structured settlement sales are governed by state law with specific processes that must be followed.  Even the fastest states will take 30-45 days to turn around your sale.  If you need money sooner than that, sorry – you’re out of luck.

Get the Biggest Payment!  The only way to know if a structured settlement buyer is giving you the best deal on your sale is to compare prices.  A site like www.quotemeaprice.com allows you to post the details of your settlement and get quotes from competing companies, so that you know who’s offering the most money.  But no matter who you choose, understand that the amount you receive will be only a fraction of the total amount of your entire settlement.  Structured settlement buying companies make money by buying a settlement for pennies on the dollar.

No Hidden Fees!  No matter what a structured settlement buyer promises you, be sure to read every document and agreement thoroughly for any additional costs.  Your state will probably require you to get the advice of an attorney, too – make sure your lawyer is independent (not “recommended” or “preferred” by the structured settlement buyer) and has dealt with structured settlement factoring transactions before.  Buyers have been accused of charging fees even though state law specifically prohibits them.

We’re the Industry Leader!  There are some big players in the structured settlement market with well-known names.  But no matter which buyer you choose, check them out through the Better Business Bureau to make sure they are legitimate and to see what types of complaints, if any, have been filed against them.

It’s Your Money!  Yes, it is your money, but once you sell your structured settlement, it’s not your money anymore.  Understand that these companies are in business to make a profit, and that they are not looking out for your best interests – that’s your job.  Once you sell your settlement, how will you meet your living expenses?  How will you support yourself?  Do you truly need to sell?  If you do sell, will your money needs be resolved, or will the same problems keep coming back?  Remember that you are giving up a fair amount of your settlement if you sell, so you should give this decision serious thought.

If you’ve got a structured settlement and are considering selling it, you have hopefully used a site like www.quotemeaprice.com to get bids for the portions of your structured settlement that you are considering to sell. 

Still, once you get those bids, how do you know which to choose?  Do you take a slightly lower offer from one of the big players in the structured settlement market, or do you take a chance selling your settlement to a company that is not as well-known?

It all boils down to “due diligence.”  Essentially, that means you have to do your homework to make sure a company bidding to buy your structured settlement is reputable, and whether you trust that company enough to give them your business.

Once you get a short list of companies bidding on your settlement, an easy way to begin checking them out is with a simple Internet search.  Are there lots of articles about them?  Lots of complaints?  If there is absolutely no information at all, it could mean that the buyer is a brand new company; not necessarily a bad thing, but you have no history to go on.  This is all starting information, and you need to go further.

Your next stop should be the Better Business Bureau.  There, you can review complaints that have been made against prospective structured settlement buyers.  Most companies will have some complaints against them, so the content of the complaints should be your focus here.  Do the companies change the deal after the fact?  Did they fail to pay up on their settlements?  Did they sneak in hidden fees?  This will tell you what red flags to watch for when you begin the sales process.

Another added check might be the state attorney, or some other regulatory that handles consumer complaints, to see if your prospective buyers have encountered problems in your state.

Even once you’ve selected a vendor, be it a major player or a start-up, you can’t drop your guard.  Review carefully every contract and document given to you as part of your structured settlement sale.  Talk to an independent attorney who’s had experience with structured settlement sales, and talking to a financial advisor is a good idea, too.  Make sure this is a good deal for you, or at least the best deal you can get.  And don’t forget – you have the “cooling off” period right after the deal is done where you can pull the plug on the whole thing, if you want to.

Even if you’re resolute about selling your structured settlement, there are plenty of reasons why it won’t – or perhaps shouldn’t – happen.

Contrary Legal or Financial Advice.  Most states require sellers of structured settlements to seek out legal and/or financial advisors to review the sale and help you determine if selling is in your best interest.  Expect them both to look at the discount rate, the rate that the buyer uses to scale back your settlement to an amount he’s willing to pay for it.  The discount rate is intended to compensate the buyer for the lost ability to invest the cash, as well as for his overhead.  But your lawyer or financial advisor might suggest not selling if the rate’s too high.  They may suggest that you can do better elsewhere, or they might remind you that you’re not in a position to make up lost revenue when your structured settlement is gone.

The Court.  A judge will have to look over the structured settlement transaction and approve it.  You may even have to appear in court, depending on the state where you live.  A judge may decide that your reason for wanting to sell isn’t compelling enough.  Or the judge may question or outright deny the transaction based on – again – that discount rate.  This happened in one case in New York in 2010.

The Seller.  When you’re looking over bids that you’ve received for your structured settlement – and hopefully you’ve used a site like QuoteMeAPrice to find competing bidders – hopefully you are checking out the companies who’ve made offers.  You may find that other prospective sellers complained about buyers who backed out of the deal midstream.  Unfortunately, this happens – the buyer may look over his offer and decide that he can do better elsewhere, or that the discount rate will fall short of the profit he wanted to make.  If this happens you will have to start over again.

You.  Most states provide for a “cooling off” period after the structured settlement sale has jumped through all of the hoops mentioned previously.  This is your last chance to think over your decision to sell and make sure you’re doing what’s right for you.  Think hard about the reasons why you’re selling.  Think about the stream of payments that will no longer be yours, and make sure you will still be able to support yourself.  Think about how the discount rate will cut into the settlement you would have gotten over time.  Finally, think about your plan to use that money, and make sure selling your settlement is the best option.

With interest rates at all-time lows, it’s hard to find a reliable investment with a solid return.  This is what makes structured settlements so tempting.  2010 was a great year for most structured settlement buyers…so is this a business you want to get into?

Rate of Return.  The real money from buying a structured settlement comes from the discount rate, which is essentially reverse interest that the buyer charges the seller.  It is a fee for the annuitant to get his money ahead of schedule.  Discount rates in the double digits are common, and that’s what covers your overhead and gives you a rate of return to brag about.

Caveat:  All states have structured settlement statutes that provide for the transaction to be approved by a court.  The seller – and you – may even have to show up.  A judge is going to look at the transaction and decide whether it’s in the best interest of the seller.  A too-high discount rate might doom your transaction.  In 2010, for example, a New York court questioned a discount rate of 20%. 

Cash Flow.  Borrowing is cheaper than ever, if you can secure it.  Get your hands on enough cash, for enough time, and you’ll have the ability to buy out several settlements and let the money come in.

Caveat:  Nothing lasts forever.  Should the Fed start raising rates – and a healthier economy might mean just that – the cost of borrowing will go up for you.  If you can’t raise your discount rate, something else will have to give.

Motivated Sellers.  The current economic slump has meant that many annuitants might be facing foreclosure or job loss.  A big medical bill, a car accident, or some other unpleasant surprise can make the pressure to get cash now absolutely unbearable.  These sellers are ready to go, and will likely accept whatever deal you offer.

Caveat:  Again, courts have to approve the sale, so taking advantage of distressed annuitants won’t serve you.  Besides, with services like QuoteMeAPrice at their disposal, annuitants can choose between competing offers.

The Process.  Every state has a legal process for the sale of structured settlements.  Become familiar with, and follow, the rules, and you’ll know what to expect.

Caveat:  The process also allows for a “cooling off” period for the seller; if they don’t like your deal, get a better offer, or just plain change their minds, all bets are off.  Also, an increasing number of structured settlements prohibit their annuitants from selling.  And there is always talk in the industry about new and tougher regulation in response to reported abuses by factoring companies.

It’s late at night and you’re watching TV.  On comes a funny, catchy ad, promising you “Cash NOW!”  for your structured settlement.  They’ll beat any offer!  Get a large lump sum!  No hidden fees!  So you start thinking about all the things you could do with a big wad of cash now, rather than having to wait months or years for the whole thing. 

Always remember that companies that purchase structured settlements are in business to make a profit.  This doesn’t mean that buying (or selling) a structured settlement is illegal, but it does mean that the company doesn’t make money unless it can convince you to sell.  So, take all those alluring promises with a grain of salt.

Cash…Later.  You may be desperate for cash if you’re facing foreclosure, medical bills, or mounting credit card debt.  But no matter how willing you are to sign your settlement away, you’ll have to wait for cash.  Why?  Because every state has a process that must be followed.  Completing your sale will take at least 45-60 days, and could take longer, depending on where you live.

You Can Beat That Offer With a Stick.  Even if a structured settlement buying company promises to give you more cash than anyone else, find out for yourself.  Always shop your settlement around to several companies.  A site like QMAP gives you the ability to do this quickly.  And no matter how persuasive a company might be, never reveal the offers you’re getting elsewhere – just ask what their best deal is.  Also know that many companies will float a low offer first to see if you’ll bite – if you wait, you might just get a better one.  And also beware offers that are much higher than the others you’re getting – some companies dangle a high offer to lure you in, only to drop it later. 

Not-so-large Lump Sum.  All buyers of structured settlements use a discount rate to reduce your total stream of payments to the amount they’ll offer you.  If you want quick cash, the discount rate is the “price” you’ll pay to get it.  The offer won’t be the full amount of your personal injury award, and it won’t even be equal to all the payments you’re scheduled to get.  This discount rate can often be in the double digits.  If you wouldn’t be willing to pay double-digit interest on a loan, would you be willing to “pay” it as part of a structured settlement sale?

Hide-and-Seek Fees.  A company may promise “no hidden fees,” but don’t take their word for it.  Always look over any offers, contracts, agreements, or other documents you get very carefully.  Look out for any fee, whether it’s for “processing,” “handling,” “filing,” or anything else.  Any fee will come out of your settlement sale.

Someone who has a structured settlement and is considering a sale of it may wonder who would want to buy.  And why? 

The purchase of structured settlements as an investment opportunity is getting more play in the media.  It’s new (not really)!  It’s different (well, OK)!  It gives a great return (correct)!  The allure is understandable:  for an up-front infusion of cash, an investor can take over an existing stream of payments.  Because structured settlement buyers use a discount rate to figure how much they’ll pay, they can control their profits – and rate of return.  With discount rates often in the double digits, the return on a structured settlement can easily beat any stock or bond available in today’s markets.

The current recessionary economy has also created a boon for settlement buyers.  With the economic downturn, structured settlement annuitants are highly motivated to sell.  They need cash to pay medical bills, to survive unemployment, or to hold off foreclosure.  The more desperate the seller, the more likely they’ll accept a highly discounted settlement, and take the deal fast.

Another reason investors love structured settlements:  security.  Most annuities are created when a lawsuit defendant takes a lump sum to an insurance company and purchases it.  The insurance company is able to invest that cash and earn enough interest to make the payment stream to the plaintiff.  These investments are locked in, and usually protected.  As a result, the payment stream is relatively secure.  As long as the insurer stays in business, the payment stream is a certainty.  The only thing the buyer has to do is sit and wait.

But getting into this business can be tough.  Of course, you’ll need access to cash in order to make those initial purchases.  You’ll also need a reserve of cash to meet operating expenses while you’re waiting for those first settlement payments to come in.  You’ll need help navigating the regulatory environment surrounding the sales of structured settlements.  All states have a strict process and timeline for sales, and all of them include a “cooling off” period in which the seller could change his mind.  You might invest a lot of time and resources into a purchase, only to have the seller back out at the last minute. 

Finally, there are a number of very big players in the market who do a high volume of structured settlement buys.  In order to get noticed in a bidding environment like QMAP, you’ll have to make your bid stand out – this may mean taking a lower profi

So, you’re thinking that now might be the time to cash out your structured settlement.  You’ve got bills to pay.  There’s a business you want to start.  There’s an investment you want to make.  Is this a good idea?

Hopefully, you already know that selling all or part of your settlement will bring you less in a lump sum than you would have collected over time.  Maybe you’re prepared to accept that.  But, still, is it worth it?   Well, the only good reason to sell is if what you’re getting into will pay more than the settlement you’re giving up.  Consider the following situations; if yours doesn’t match any of them, you probably shouldn’t sell.

A Real Need.  It’s easy to tell yourself you really need money when you just really want money.  Money for a vacation or new gadgets is not a need.  Money to buy a new car probably isn’t a need if you can afford to repair the old one.  Money to pay for outstanding debts or medical bills might be a need, but will selling your settlement give you enough to do so?  And are you sure there’s no other way to get them paid?

Even if the sale of your settlement pays your bills, will it pay them all?  Or will more keep coming in the mail?  A sold settlement is sold, and gone forever.  If the sale won’t solve your problems in full and for all time, don’t sell.

A Backup Plan.  You probably got a structured settlement because you were injured, and the annuity is intended to take care of you – and your expenses – for a certain period of time.  Close your eyes and imagine your life without it.  Is there any other money coming in?  Do you have other savings?  If not, especially if your injuries have left you unable to work, you probably shouldn’t sell.

A Good Idea.  But you’re smarter than everyone else – you’ve got a no-fail business deal that’s going to make you rich.  Or, your financial advisor has told you about some secret new investment that will pay far more than any stocks or bonds available.  Really think about that one.  New businesses, even with the best ideas and backing, fail all the time.  And there’s no such thing as a no-fail investment.  Be particularly wary of anything a financial advisor says is “new,” or “secret,” or “undiscovered,” or anything else that sounds too good to be true.