| Consider Your Interest Rate Or Discounted Rate When Selling Your Annuity Or Structured Settlement |
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| Written by Mary Michaels |
| Wednesday, 02 June 2010 18:41 |
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The Time Value of Money and Annuity & Structured Settlement Transfers
The Time Value of Money and Annuity & Structured Settlement 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 idea of the time value of money should clear up any doubts as to the reason you would receive less money than your policy is planned to pay out should you decide to sell your structured settlement payments. The current value is the present worth of a future amount of money or source of cash flows paid out in a lump sum upon being discounted at a particular rate. Long term cash flows are discounted based on the dates they are due to be paid and whatever rate is being imposed on the exchange. A payment of $100,000 payable in 2 years is definitely going to be valued higher than that same $100,000 lump sum due in 20 years assuming the very same discount rate is used in both examples. It's a rather simple concept to understand. The more time it takes for an investor to recover his or her investment, the less money that future amount will be valued at today. Discount Rates Applied to Structured Settlement & Annuity Transfers Any person that is interested in selling a structured settlement annuity should be aware of exactly what discount rate the factoring company is imposing. As an example (as of the time of this article) if you have a $200,000 payment scheduled for January 1, 2015 which you'd like to cash in you'd receive $89,763.55 using a 19% discount rate. On the other hand, that exact same amount due on the same date having a 15% discount rate would pay $105,072.08. Variances in the discount rate will have a tremendous impact on what you could receive in a lump sum. In this prior example only a 4% variation meant $15,308.53! So know what your discount rate is before you sell your structured settlement annuity and shop for the lowest rate. Using a Present Value Calculator to Ascertain the Value of Your Annuity or Structured Settlement You should utilize a present value calculator to determine what your lump sum payment would be at varying discount rates. For structured settlement and 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, nevertheless several of them command extremely high discount rates. Go for the highest offer you can prior to cashing in. You may want to meet with your lawyer and/or financial consultant prior to signing a contract only to make certain you are entirely knowledgeable of the terms of the exchange. Time it Takes to Complete Structured Settlement and Annuity Transfers Structured Settlement Annuity transfers take an average of 2 months to complete. In a nut-shell the process is: client accepts the offer for his or her structured settlement payments, client executes the contract, lawyer requests a hearing for transfer of structured settlement payment rights, court hearing is scheduled, court hearing takes place, and the seller is funded with a lump sum if the judge approves the transfer. A handful of states may be faster than others but the general process is the same irrespective of what structured settlement and annuity factoring company you go with. Single premium immediate annuities that don't stem from a lawsuit usually don't have to seek court approval. Generally these transactions may be accomplished in as little as one or two weeks. Usually these annuities were bought as an investment or inherited. The annuitant may decide to cash in their annuity policy at some period and choose a lump sum. The sum offered can be marginally more than with structured settlement annuities since there are usually no legal fees or legal labor associated with the exchange. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Conact us if you have any questions regarding the annuity and structured settlement transfer process or wish to receive an offer on your annuity or structured settlement. You may also call us at 1 (888) 852-5658 and ask to speak with Mary Michaels. She is our foremost structured settlement annuity transfer broker. |