Guide to selling structured settlements

Why would I sell guaranteed future payments?

Only you know for sure, but it is almost certainly due to a change in your life circumstances. Structured settlement payees are scheduled to receive guaranteed future payments, and that is generally a very good thing. But, a monthly payment, or a single lump sum due far in the future will not buy a house, send someone to school, or eliminate high interest debt. Structured settlement payment streams are financial assets, like any other asset. They should be used as needed, and only you know for sure whether taking funds out now, rather than later, is a good idea.

Will I receive a fair price for my structured settlement payments?

State law requires that all companies make a fair and reasonable offer, and a Judge must agree that they have done so. That does not mean that every potential buyer of your payments will make an offer that will stand up to a Judge’s scrutiny. You’re expected to know how they determine the price, what the interest rate assumptions are, and why it is fair. Please ask questions. All reasonable buyers will answer them.

What is the Present Value of my structured settlement payments, and how is it calculated?

The Present Value, or PV, is an estimation of what your future payments are worth today, and is equivalent to the Purchase Price. It is literally the “present” value, as opposed to the actual amount of payments that will be made in the future. The PV is less than the actual payment that is due in the future. Present Value excludes the future “growth” of your annuity. Annuities are investments that “grow” based on an interest factor, just like you earn in your savings account at the bank. A dollar today, put in a savings account, might be worth $1.05 next year. The PV of anything represents the reverse calculation, meaning that the PV of a $1.05 due a year from now is $1.00 today. Payments issued through an annuity already include the interest earned. “Present” value refers to the value of the payment minus the growth, as calculated by the purchaser, based on a particular interest rate.

How is the Purchase Price of the sale calculated?

In order to calculate the Present Value of your future payments, an interest rate must be applied against the time it takes for the buyer to receive your payment. That calculation is the same one that a bank performs when you borrow money. You are charged interest until payment is made. The difference is related to the fact that we are buying your annuity payments, not borrowing against them, and the interest you are paying is part of the payment collected from the insurance company. Interest accrues until the payment is made. The price represents the difference between your payment amount and the interest accrued, so payments due further in the future are worth less than those due sooner. Clear as mud? Give your buyer a call. If they’re good, they will be happy to discuss this in more detail over the phone.

Why are there laws that regulate the sale of future payments?

To make sure that people giving up guaranteed future payments do so for good reasons. If you need your monthly payments in order to buy groceries or to pay rent, you should not sell them. Once you have sold a future payment, it will no longer be there to provide financial security. On the other hand, if you can personally justify the need for selling future payments, then a court should agree with you.

Can I sell some of my payments or a portion of a payment?

Yes and yes. Buyers will sometimes recommend it. It is their job is to make sure that the sale is in your best interest. Sometimes it is a good idea to sell a portion of your monthly payments and retain the remainder as regular income. Sometimes it might be a good idea to sell a portion of a large future lump sum payment and leave the remainder as a retirement cushion, or as insurance for a rainy day. Remember, a court must approve the sale, so think about what makes good sense given your financial situation.

Must I hire an attorney?

A few state laws require that you hire an attorney to review documents and advise you as to whether the sale is a good idea. Most states do not, so that decision is left up to you. If you feel more comfortable having an attorney review documents and provide advice, you should hire one. We will let you know exactly what the law in your state requires.

How long does it take to obtain the court order required by state law?

On average, 8-9 weeks. Do not let anyone tell you differently. There is no reason to expect something in 4-6 weeks if it takes longer, and it takes longer because the legal requirements mandate that it must take longer. If someone tells you otherwise, they are not being honest, and that does not make for the start of a good business relationship.

How long does it take to receive my money after court approval?

Provided the Judge signs the court order approving the transaction, and the buyer is able to obtain a version of the executed court order, you should receive your money within a few business days.

How do I know that my transaction will be approved by the court?

Honestly, and sincerely, you don’t. A Judge must approve it, and nobody can get inside the Judge’s head. But, if everything is done correctly, following the law, and if the court respects your sincere need for the funds, it will be approved. Quite often, approval is a function of the level of service you receive from the purchaser. If the purchaser has a great reputation with the court, and provides quality service, your transfer should be approved.