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Structured Settlement Annuity Rates

I am often asked by my clients about Structured Settlement Annuity Rates, asking about the effective rates shown on the available offerings. This is the rate of discount to purchase the stream of future payments. A lot of folks think that this is like a loan, with an annual interest rate, but this is not really the case.

Another misconception is erroneously looking at only the total payout, and the investment total, when figuring the interest rate. You have to keep in mind that payments are made on a monthly basis. Therefor, the amount of principal is going down with each payment, just like the amortization of a mortgage.

An Example May Help Clarify

Maybe an example will help. Let’s say there is a stream of 200 payments of one thousand dollars each. The stream of payments was contracted to close on 4/1/2012, and the 1st payment was to begin on 5/1/2012. The buy price was $135,605.97, and the effective interest rate was five per cent.

If we look at this as a mortgage loan, the total payout to the lender would be $200K over the term of the mortgage. It would be paid off in sixteen years and 8 months. In this scenario, the lender gave you the funds for a promise to pay back $200K, which is a five per cent discount rate on the future payments for the lender.

Now, if this was a Structured-Settlement-Cash-Flow, you would be paying $135,605.97 for rights to the total payments of $200K, over a period of two hundred months. So, what you are doing is purchasing the future payments at a Discount. Investors buy annuities as a way of getting better rates for their money. They are not doing it to help you out, they are doing it to make money.

My Caution To My Clients

I always caution my clients when they are contemplating selling their annuity. It should be made very clear that they will not receive the full value, which would include a total of all future payments. They will be receiving a lump sum of cash based on a discount, which is meant to entice a buyer into purchasing the rights to the future payments.

The goal is to have a “win-win” situation. The investor wants to purchase an annuity at a good discount rate, and the settlement holder wants to maximize their cash-out position. This is done all of the time. Perhaps the settlement holder is not so happy about not getting their full amount, but with proper planning, it could turn out to be a positive situation.

If you take your lump-sum of cash, and handle it wisely, it can still give you a monthly income, and show growth over time. If you need the cash to cure your debt problems, you will be happy to get a large lump-sum of cash now, and perhaps catch up on mortgage payments, or car payments, or put the kids through college.

A lot of doors open up when a person has a large lump-sum of cash to invest. I always recommend Einstein Structured Settlements for anything having to do with cashing out of settlements, and help with annuities, as well as the structured settlement annuity rates.