How to Choose the Best Structured Settlement Buyer for Your Needs
Use these insights when choosing a buyer for your future structured settlement payments:
- Customer Service: Customer Service: Checking the customer service of a company is a must. Gauge the customer service level from the interactions with the company. If you feel rushed and your questions aren’t answered, you should keep looking.
- Discount Rate: Not all purchasers will offer the same compensation. The secondary market is very competitive, which savvy individuals can use to their advantage. 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 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: How long does it take to complete a deal and receive your cash? 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 evaluate the legal expertise of their staff. Having an established history in the structured settlement industry can help with 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
If you notice any of the following red flags, stop the process and look for a different buyer:
- The company representative is pushy and pressures you to decide.
- The company lacks a physical address or complete contact information.
- The company never immediately answers phone calls and instead 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 the discount rate helps determine how much you’ll receive for your structured settlement.
The buyer should make you feel comfortable 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 you to decide. Many structured settlement companies buy annuities and can offer the help you need, so don’t tolerate sales pressure tactics.
Carefully researching each settlement buyer and taking your 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 is not the answer. Choosing the right purchaser will make selling your annuity easier and safer.
Choosing the Right Settlement Buyer Means More
Choose your structured settlement buyer carefully. Properly researching a structured settlement buyer includes comparing discount rates. This rate determines how much you receive as your lump sum payment.
Shopping around is essential, so 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 in exchange for your remaining annuity payments. Buyers wouldn’t make money if they gave you the remaining annuity payments in full, so they apply a discount rate. You sacrifice some long-term income to receive cash immediately.
The discount rate can vary greatly between companies, ranging between 9% and 18%. Companies primarily base discount rates on expected future interest rates. They then apply that discount rate to your future payments to determine the annuity’s present value using the following formula: PMT x ((1 – (1 / (1 + r) ^ -n)) / r). PMT equals the dollar value of each annuity payment, r is the discount rate, and n equals the number of remaining payments.
They may also charge court fees and other costs, so the present value of your annuity doesn’t completely determine your offer.
Why Should You Consider Selling Your Payments?
There are many reasons to consider selling your settlement. The most common include making an investment—such as buying a house—and alleviating a financial bind. In both cases, selling a settlement can provide you with the cash you need. Structured settlement companies understand that you may need your money urgently, so they try process the sale quickly.
Selling a structured settlement can have a significant impact on your long-term financial situation. Take your time evaluating whether to sell your annuity and researching potential buyers, even if you’re under pressure to come up with money quickly. Consider consulting a qualified financial adviser.
People often sell their structured settlements to:
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 options when selling your structured settlement.
- Full: With a full sale, you’ll sell all your settlement payments for a lump sum.
- Partial: Alternatively, you can sell some payments and continue to receive monthly payments once they’re paid to the buyer. If you sell two years of payments, you get a lump sum at the beginning, then resume receiving monthly payments after two years.
- 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 potentially less financial security for your future
Consider each factor when deciding whether to sell.
What to Expect from the Process
Once you’ve decided to sell your settlement, here’s what to expect at 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)
Despite its name, the Federal Structured Settlement Protection Act is an industry agreement and not federal law. Major industry associations voluntarily agreed to self-regulate to protect structured settlement owners.
Each state has its own laws, often based on the SSPA, that protect structured settlement payment holders. Common state-level provisions include:
- When a company agrees to purchase a structured settlement, they must provide information on the difference in value between the sale price and the value of the payments if the settlement is left intact.
- A judge must approve the transfer of payments to make sure the transaction is in the best interest of the individual. The judge will look at the following:
- Reason for selling payments
- Discount rate
- Seller’s employment status
- Prior transactions
- A disclosure statement must clearly summarize the terms of the transaction.
- A cooling-off period, usually 3-10 days after signing the documents, gives the individual time to cancel the sale. Check with your state’s attorney general’s office for details.
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.
What to Expect with Taxes When Selling Your Settlement
Selling an eligible structured settlement does not trigger US federal income tax thanks to the Periodic Payment Settlement Act of 1982. Selling a lottery annuity, however, is taxable.
If you have questions on the taxability of your structured settlement, consult a tax professional.
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 are typically 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, use the following formula: PMT x ((1 – (1 / (1 + r) ^ -n)) / r). PMT equals the dollar of each annuity payment, r is the discount rate, and n equals the number of remaining payments.
Can I cancel the sale of structured settlement?
Usually you can, but the amount of time you have varies by state. Check your state laws before signing anything to know how long the cooling-off period is, when it begins, and how to cancel.
Selling settlement payments may help resolve an urgent financial issue, but is not a decision that should be taken lightly. Carefully examine options before moving forward. If you decide to sell, choose a structured settlement buyer after thorough research. 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 better understand the process of selling settlements and strategies to avoid rash decisions that will negatively impact your financial future. Taking your time in the process can help ensure you receive a fair lump sum with minimum hassle.