Structured Settlements – Present Value of Future Payouts The present value of future payments made in a structured settlement, less any applicable taxes, less any loan balance owed, less any ongoing expenses, less any commissions to be paid and the remaining amount of the settlement (net) less any net cash inflows, less any periodic fees. It should be noted that the sum of the present value less any taxes does not take into account any possible future taxes, which is why it can be referred to as ‘future value’. A lump sum payment of a predetermined amount will usually have a greater future value than will installments. However, many companies will allow a much larger lump sum payment in exchange for some percentage points in ‘net’ payouts. In other words, if a settlement has a fair value now, but a large percentage point difference between ‘fair value’ and’settlement value’, then the settlement may have greater downside risk than would a payment with equal monthly payments.
A structured settlement calculator can help in determining the potential amount of cash inflows that occur after a settlement. It can also be used to provide an estimate of any future interest that will be received. A lump sum payment in today’s market can have a significant effect on the interest rate that is charged on future payments by financial institutions. This is because a large sum of money invested now can easily create considerable ‘earnings’.
A structured settlement calculator can be used to determine the effect of inflation on the actual value of future payments. Inflation is defined as an increase in the value of money over time. If the lump sum amount decreases with time, then the expected monthly payments will decrease as well.
A structured settlement calculator can be used to determine the effect of taxes on the total payout of a settlement. Taxes are based on current prices and are scheduled to increase over time. Therefore, the amount of future tax payments that must be paid can be estimated with a calculator. Any amount that is above this amount can be deferred and contribute to a larger lump sum payout.
The use of a structured settlement calculator allows calculating the best interest rate that can be obtained for future payments in exchange for allowing a percentage of the total payments to be paid in annual bonuses. Many companies provide this feature for the convenience of their customers. This can help in determining the best payment option that provides the best benefit for both parties.
Any person wishing to sell their annuity needs to have a working knowledge of how a structured settlement calculator works. This can make the entire process much easier for those who are involved in selling annuities. When using these tools, it is important to have all information available so that the entire transaction is properly handled. This will ensure that a person receives the best interest rate possible and will not be sold a settlement with a rate that is below their future payments.