Based on recent news regarding the secondary structured-settlement market, you already know that transferring your periodic payments to a third party is perfectly legal. But knowing that you can sell your structured-settlement payments for a lump sum amount does not mean that you have to. If you are not planning to stay in your home and are simply looking to make some money, selling your payments for a lump sum amount may not be the best idea for you. This is especially true if your current income and expenses do not leave you much room to work with. To determine whether or not selling your structured-settlement payments would be a good option for you, it is important to take a look at how they actually work.
When you sell structured settlement payments, what happens to them? Essentially, when you transfer your payments to a company, they are going to give you a lump sum of cash, less than the total of your future structured settlement payments. This is really all that happens. However, there are a few things that you must consider before you decide to transfer your payments.
First, what is the present value of your settlement? Basically, this refers to the amount of money that your settlement would bring today in our economy, compared to the amount that it would bring in the near future. You can easily find this information on the website of each company that you are interested in transferring your settlement payments to. It is extremely important to note that when you are looking to sell your settlement payments, the present value of your settlement must be greater than zero.
A discount rate is also something that you will need to consider when you sell structured settlement payments. Basically, this is an estimation of how much you could potentially get in the future, based on the information that you have in front of you at this point in time. For example, if you currently have an interest rate of only eleven percent, and you want to know how much money your annuity will be worth in five to ten years, you will need to use a discount rate of at least twelve percent in order to come up with an accurate figure. When you use the appropriate discount rate, you will get the right amount for your annuity; however, using a much higher or lower discount rate than you should could actually result in your annuity not receiving any extra money over the long run.
Finally, it is also extremely important to take into consideration the present value of your settlement payments. Essentially, this simply means the total amount of money that you would currently receive in a lump sum, should you decide to sell all or part of your annuity. Obviously, the amount that you are being sold to get the lump sum is secondary; however, the present value of the payments is what you will use to determine whether or not you are getting a good deal when selling. Using a discount factor of at least twelve percent will ensure that you are getting a good deal on your present value; however, using a higher discount factor can actually cost you more money than a lower one.
In the end, it should be noted that you do have many options when it comes to selling your structured settlements. However, you must make sure that you follow all of the steps mentioned above in order to make sure that you are getting a true, fair price for them. While the process has become more difficult over the past few years, it is still possible to work with structured settlements; as long as you take the proper precautions to protect yourself and your investment.