How to Choose the Best Structured Settlement Buyer for Your Needs
There are a few criteria you should consider when looking for a structured settlement buyer to purchase your future payments. Use these insights as a starting point of what to look for when choosing a buyer.
- Customer Service: Checking the customer service of a company is a must. Gauge the customer service level from the interactions you have with any company representatives. If you feel like you’re being rushed and your questions are not being answered, it may not be a good fit and you should keep looking.
- Low Discount Rate: Not all purchasers will offer you the same compensation amount. The secondary market is very competitive among firms, which means savvy individuals can use this to their advantage. Make sure you are getting as much of your settlement money as possible in the lump sum payment. Don’t be afraid to shop around for the best offer.
- Offer Multiple Options: The company should offer you multiple options for both full and partial buyouts rather than forcing you to sell all of your future payments.
- Reputation: Check out third-party reviews on sites like Google or the Better Business Bureau. This gives you an independent look at the customer experiences of other individuals who sold their structured settlement through the company.
- Time Period: What time period does the purchaser offer? The average time is around 1-2 months but could be longer with the required court proceedings.
- Expertise & Legal Help: Find out how long the company has been in business and compare the legal expertise of their staff. Having an established history in the structured settlement industry can help with the legal process of court approval.
- NASP Member: Choosing a structured settlement company that is a member of the National Association of Settlement Purchasers ensures they’re committed to industry standards and best practices.
How to Avoid Companies That Your Waste Time and Money
As with any business transaction, watch for red flags. If you notice any of the following, you should immediately stop the process and look for a different buyer.
- The company representative is pushy and pressuring you to make a decision.
- The company does not have a physical address and very little contact information.
- The company never immediately answers phone calls and only returns them later.
- The company does not exhibit transparency and the process seems confusing.
Avoid structured settlement buyers with a discount rate that is too high. Higher discount rates mean significantly less money for you, since they’re essentially fees that reduce your settlement amount. The lower the discount rate, the more money goes in your pocket.
The buyer should make you feel comfortable and at ease throughout the process. Every step should be explained in exhaustive detail. The purchaser should never pressure you to agree to the transaction and they should offer sufficient time for a decision to be made. There are many structured settlement companies that buy annuities and can offer the help you need, so don’t settle for less simply because of sales pressure tactics.
Carefully researching each settlement buyer and taking time in the process will help to ensure your transaction is smooth. Even if you feel desperate to have your money as soon as possible, rushing the process is not the answer. Choosing the right purchaser will make the process easy for you.
Choosing the Right Settlement Buyer Means More
There are many reasons to sell your settlement. Most people consider selling when they want to make an investment such as buying a house or when they’re in a financial bind. In both cases, selling a settlement can provide you with a lump sum payment to achieve your goals or resolve financial problems.
Careful consideration must be taken when choosing a structured settlement buyer. With proper research, you will be able to find the ideal factoring company to help you gain access to your money instead of waiting on monthly payments.
Aside from learning as much as you can about a structured settlement buyer, you also need to make sure you compare the discount rate for each settlement buyer. This rate determines how much you receive as your lump sum payment. It is important to note that the discount rate is not the same between different structured settlement companies, so shopping around is essential.
Get quotes from multiple companies before accepting an offer!
What is the Buyer’s Discount Rate?
When you sell a structured settlement, the buyer gives you a lump sum of cash and then receives your remaining annuity payments as income. But they wouldn’t make any money if they simply gave you the remaining annuity payment in full. That’s why companies apply a discount rate to each transaction. They’re essentially buying your remaining payments at a discount.
There are a number of factors a company considers when calculating the discount rate. They’ll look at the value of the payments as well as how far into the future the payment dates are. Court fees and other costs will be taken into consideration, as well as general economic conditions.
The discount rate can greatly different between companies. Expect to see offers with a discount rate of anywhere between 9% and 18% of your settlement balance. That amount is deducted from your total remaining annuity payments before receiving the cash. Let’s take a look at an example.
Say your remaining structured settlement payments total $100,000. One structured settlement company charges a 9% discount rate, meaning you would receive $91,000. Another company charges an 18% discount rate, which would only leave you with $82,000. That’s a big difference.
Why Should You Consider Selling Your Payments?
You may feel compelled to sell your future payments due to financial distress. Structured settlement companies understand that you may need your money as quickly as possible and it is their goal to get you your funds in a timely manner.
One of the biggest reasons for problems arising during the selling process is a lack of research. When you are in a financial bind, you may not make the best choice. But you should never allow your financial desperation to affect the decision process as it can have a negative impact on your long term financial security.
There are many reasons people choose to sell their payments. Here are some of the most common:
Pay off debt
Purchase a home
Purchase a car
Start a business
Invest your money
Pay for college
Options for Selling Your Structured Settlement
You can choose from a few different options when selling your structured settlement.
- Full: With a full sale, you’ll sell all your settlement payments and receive large lump sum at one time
- Partial: Alternatively, you can sell a number of payments, and continue to receive monthly payments once they’re paid to the buyer. So if you sell two years of payments, you get a lump sum at the beginning, then resume receiving those monthly payments at the end of the two-year period.
- Portion of payments: Finally, you can sell a portion of each payment so that you get a lump sum, plus part of your monthly payments.
Pros and Cons of Selling Settlement Payments
- Receive your money faster
- Save money by paying off high-interest debt
- Invest your lump sum and potentially increase value
- The payments are being sold at a discount, so some money is lost
- There is a risk of using the cash for poor financial decisions
- There is less financial security for your future
There’s definitely a lot to consider when deciding whether or not to sell.
What to Expect from the Process
Once you’ve decided to sell your settlement, here’s what to expect in each step:
- Shop around and contact multiple structured settlement companies. Most offer free, non-obligatory quotes.
- Compare quotes and accept the one offering the most cash along with a transparent and professional experience.
- The buyer (aka factoring company) draws up the transaction documents for you to sign.
- The buyer files paperwork and arranges a court hearing so a judge can oversee the transaction. This is for your protection.
- You will appear before a judge to answer a few questions. Once the judge approves the transaction, the order is then sent to the insurance company and you receive your money from the settlement buyer.
The Structured Settlement Protection Act (SSPA)
As with any financial transaction, there are steps that must be carried out to ensure the transaction is legal and compliant with all relevant laws. The Structured Settlement Protection Act (SSPA) became law in 2002. This act protects the consumer and ensures the process is fair in meeting your financial needs.
SSPA was passed primarily to protect the victims of the September 11 attack. The act was meant to make consumers aware of how to protect themselves when selling their future payments. Because of this act, a judge must approve the sale of structured settlements. The judge will look at the following to make a determination:
Reason for selling payments
Seller’s employment status
In some states, you will be required to receive Independent Professional Advice before you complete the sale of your structured payments. The IPA is from a financial planner who will assist you in understanding the implications of selling your payments and the impact it will have on your financial security.
Check your state’s cooling off period that lets you cancel the sale within a certain amount of time. Your state attorney general’s office can help you find the information you need.
In most states, there is a cooling off period that lasts 3-10 days between the signing of the documents and processing. During this time period, you have the right to cancel at any time and the documents cannot be processed by the buyer until this time period has elapsed.
What to Expect with Taxes When Selling Your Settlement
Selling an eligible structured settlement does not trigger an income tax. Since the early 1980s, federal law states that the full structured settlement payments are tax-free. To qualify, the settlement must be from personal injury, wrongful death, or an auto accident. Selling a lottery annuity, however, is taxable.
If you have questions about the choices available to you or aren’t sure what to do, talk to a financial planner to get professional advice.
Who buys structured settlements?
There are many buyout companies that purchase settlements and annuities. These are called factoring companies.
What companies buy accident settlements?
DRB Capital, Fairfield Funding, and CBC Settlement Funding are a few examples of companies that purchase structured settlements resulting from accidents.
Can I sell while going through divorce?
This depends on a few different factors. The first is your state laws. In community property states, assets may need to be split between spouses. In equitable distribution states, assets are usually distributed based on when they were acquired — either before or after the marriage. The type of structured settlement also impacts how it’s split up in a divorce. If the settlement is related to a medical issue, it may be given to the person the settlement was awarded to. Either way, you shouldn’t sell until you’ve consulted with a divorce attorney and completed the court proceedings.
What is the present value of a structured settlement?
The present value of your structured settlement is the amount you would receive from a factoring company if you sold it. To calculate your settlement’s present value, you’ll need to calculate the value of your remaining payments (including earned interest) and then subtract the discount rate proposed by the buyer. So if the remaining payments (including interest) add up to $50,000 and you’re offered a 10% discount rate, the present value of your settlement would be $45,000.
Can I cancel the sale of structured settlement?
Yes, but the amount of time you have varies by state. The good news is that the structured settlement sales process takes some time, so you have the opportunity to think about it. After the court approves the sale and you sign the contract, you may have anywhere between one and three days to cancel the sale. Check your state laws to know for sure how long you have.
While selling settlement payments may seem like the only way to resolve an urgent financial issue, this is not a decision that should be taken lightly. Carefully examine options before moving forward. Then choose a structured settlement buyer that will best help you meet your needs. With the right buyer, you can receive the cash you need at a fair price, instead of having to wait for your settlement payments over a long period of time.
With this guide, you should have a better idea of the process of selling settlements and strategies to avoid rash decisions that will negatively impact your financial future. Taking time in the process will help ensure you receive a fair lump sum of money for the purchase of your structured settlement.