Ask About Your Interest Rate Or Discounted Rate When Cashing In Your Structured Settlement Annuity

Written By: Yvonne Rivera on June 1, 2010 No Comment

The Time Value of Money and Structured Settlement or Annuity Transfers

The words annuity and structured settlement are sometimes used interchangeably. A structured settlement is a defined payment schedule granted to the client of a lawsuit in the form of a single premium immediate annuity (SPIA). Understanding the concept of the time value of money should really clear up any doubts as to the reason you would be given less money than your insurance policy is planned to pay out if you decide to cash in structured settlement annuity. The present value is the current worth of a future sum of money or stream of cash flows paid out in a lump sum upon being discounted at a precise rate. Prospective cash flows are discounted based on the dates they are expected to be paid and whatever rate is being charged on the transfer. A lump sum payment of $100,000 due in 2 years is always going to be worth more than that same $100,000 payment due in 20 years presuming the same discount rate is employed in both examples. It’s really a simple concept. The more time it takes for a trader to make back his or her investment, the less money that future sum will be worth today.

Discount Rate Applied to Structured Settlement Annuity Transfers

Everyone that is curious about cashing in a structured settlement annuity ought to know exactly what discount rate the factoring company is charging. As a real example (as of the date of this article) if you have got a $200,000 payment due on January 1, 2015 which you’d like to cash in you’d get $89,763.55 using a 19% discount rate. On the other hand, that same lump sum due on the exact same date implementing a 15% discount rate would pay out $105,072.08. Differences in the discount rate will have a tremendous impact on what you’d receive in a lump sum. In this prior example only a 4% variation meant $15,308.53! So know your discount rate before you sell your annuity or structured settlement and browse around for the best rate.

Using a Present Value Calculator to Ascertain the Value of Your Annuity or Structured Settlement

You should work with a present value calculator to ascertain what your lump sum payment would be at varying discount rates. For structured settlement and annuity transfers, rates might be anywhere from 10-25% so it’s good to look around. You’ll find many organizations that invest in structured settlements, however many command high discount rates. Get the best offer you can before deciding to cash in. You may want to visit with your attorney and/or financial expert before signing any contract simply to ensure you’re entirely knowledgeable of the terms and conditions of the transaction.

Time Frame for Structured Settlement Transfers

Structured settlement transfers take an average of 2 months to complete. Essentially the process is: seller agrees to the offer for his or her structured settlement payments, client signs the contract, lawyer requests a hearing for transfer of structured settlement payment rights, hearing is scheduled, court hearing occurs, and the seller is funded with a lump sum if the judge approves the exchange. Certain states may be faster than others but the all around process is precisely the same no matter which structured settlement factoring service you select. Single premium immediate annuities that don’t stem from a lawsuit normally don’t need to seek court approval. Generally these transfers can be achieved in as little as a couple of weeks. Generally these annuities were acquired as an investment or inherited. The annuitant may decide to cash in their annuity policy at some period and prefer a lump sum. The amount offered may be a bit higher than with structured settlement annuities given that there are ordinarily no legal fees or legal work associated with the transaction.

If you have got any inquiries about the structured settlement annuity transfer process or would like to be given an offer on your annuity or structured settlement, please visit us. Also feel free to call us at 1 (888) 852-5658 and ask for Mary Michaels. She is Corona Capital’s foremost structured settlement transfer broker.