It’s important to think long and hard about whether selling your structured settlement is the best move. If you need the money and have decided that getting a lump sum of cash for your future payments is a must, then you’re probably wondering how much you’ll get when you sell the rights to your annuity.
Just as if you were selling a home, you can get an appraisal of the value of your future payments. Here’s how it works.
When you have a structured settlement, you own a guaranteed stream of future payments. The total amount of payments due, no matter the time frame, is sometimes called the face value. The value of that cash today is the present value.
Due to the incorporation of inflation, the face value of your payments will always be higher than their present value. In addition, if you decide to sell your structured settlement annuity payments, a buyer will pay you a lump sum of money now that will be less than the present value of those payments. Why is that? Because investors look to buy things at a profit. If the profit was 0%, then they would find something else to buy.
To calculate the value of your future payments to a buyer, we use a discount rate. The discount rate represents the percentage at which your future payments will be discounted on a yearly basis in order to determine the present value, or how much a buyer will pay you. Some people think of this as similar to the interest rate charged for a loan. It's different, but a familiar comparison: the lower the rate, the more money you get to keep; the higher the rate, the more money you lose.
If your structured settlement is for $10,000 per year for 20 years, starting next year:
- Face value = $200,000
- Present value (based on 2.3% inflation) = $158,877.64
- CrowFly Estimate (we might beat this) = $115,763.08 [Discount rate 5.89%]
- Buyer #2 (6.5% Discount) = $110,185.07
- Buyer #3 (9% Discount) = $91,285.47
- Total payments on an unsecured $100,000 loan paid back over 20 years at 10% = $234,919.20
Companies That Buy Low & Sell High
There are only a handful of companies that can get court approval for the sale of structured settlement payments and pay a lump sum of cash for them. Unfortunately, big names in the industry aim to buy people’s structured settlements for as little as possible and then sell them for as much as possible. As a result, it is estimated that $1.8 billion in future payments transfer annually for just $600 million. (That’s exactly why we started CrowFly — to offer a fairer alternative.)
Needless to say, it’s a good idea to shop around for transfer companies before choosing one. An experienced attorney, CPA, or broker can help evaluate what you have and who in the industry can give you the most money for your structure (sometimes this is referred to as getting an IPA or Independent Professional Advice). You can also use an online estimator tool to get an idea of what your future structured settlement payments would be worth.When you are informed about how your structured settlement payments are valued, you can make the best decisions for the future of that money. That’s what we are here for. Give us a call at (888) 560-6629 or visit us at crowfly.com for more information.