So you’ve made the decision to convert all or a portion of your future structured settlement or life contingent payments into cash. But how do you know if you’re getting a good offer?
The team at Life Contingent Capital is happy to share the following pointers which can help you make sure you get the most value.
When transferring future payments, two common metrics are the rate and the cents on the dollar.
The concept of a “rate” as it applies to structured settlement transfers can be difficult for many to understand, especially because these are not loans that have principal or interest payments.
The rate is a percentage used to discount your future payments to determine their value in today’s terms. Thus, when the applicable rate increases, future payments are being discounted by a larger number and the “present value” (today’s value) is less than if that rate were lower.
Ultimately, the rate on your particular transaction depends on the discretion of the purchasing company and on the timing of the payments (and, in the case of life-contingent payments, health of the underlying beneficiary. For payments coming due in the next five to ten years, the industry average is in the low-to-mid teens. For transaction structures that work with 30+ years of payments, or payments that don’t come due for another 20-30 years, LC Capital is often able to obtain low single-digit rates for our customers.
Cents Of The Dollar
This is the more simple “what am I getting vs. what am I giving up” approach to thinking about a transaction. While intuitive, many individuals fail to understand that time value of money is often the difference between a good “cents on the dollar” and a bad one. For example, a savvy recipient of structured settlement pays could obtain a quote for $75,000 for a $100,000 payment due in a few years. However, that same person would probably receive a quote of much less if that same $100,000 payment was due in ten years. Why the difference? Payments not due for a long time are worth much less than current payments; the risk of rampant inflation or mass turmoil in the economy makes it risky for investors to wait for far-out payments. As a result, they are not willing to pay as much for them.
These are just general guidelines for understanding some of the terminology associated with transfers of structured settlement or life contingent payments. You would be provided with a separate document that clearly lays out all of these numbers for the specific transfer you are contemplating. To determine if a transfer is right for you and the terms are agreeable, you should consult with an independent professional advisor.
If you have a question about selling structured settlement or life-contingent payments, or if you’re ready for a quote, the team at LC Capital is always ready to assist you. Call 833-760-4006 or visit us online at www.lcpayments.com.