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Structured Settlement Discount Rate
The structured settlement discount rate is a critical number that will affect how much you can get for selling your future income stream. There are a lot of reasons that you might be the owner of a structured settlement. If you were injured in an auto accident, workplace incident, slip & fall, medical malpractice or other personal injury case, chances are that you will be receiving an offer to accept a structured settlement. This also extends to lottery winners who do not want a lump-sum of cash to deal with.
Why Sell A Future Income Stream?
The answer is really simple: Things change. None of us can predict the future, or what condition we will find ourselves in financially. When the economy took a dive, many people found themselves struggling to stay above water. Oftentimes, they were missing mortgage and auto payments.
There are a lot of people who can’t raise the funds to send their kids to college. Even the thought of taking a dream vacation is going out with the bath water. These are reasons why you would consider selling your settlement agreement. The idea of receiving a large lump-sum of cash, even though it will be less than the full payout amount, is quite tempting if you are having a tough financial time.
It is my feeling that if you have a settlement that you can turn into cash, you are one lucky person. Not everybody is in such a position that they have something they can turn into a large lump-sum of cash. Make no mistake about it, selling off your settlement can open a lot of doors.
How Does The Discount Rate Affect The Sale Of Your Settlement?
Factoring companies are the ones that will buy your settlement. They are taking on a risk, as to whether or not the full payout will ever be realized. This is an unknown, even though most annuities are issued by very solvent life insurance companies. Nonetheless, it is still a risk factor.
The national-average is about 19% for a discount-rate, and many people in and out of the industry feel it should be lower. A more reasonable-rate would be about 10.2% to 13.5%, and both the settlement owner and the factoring-company would be happy.
It makes a big difference. Let’s look at a $200k structured-settlement that is going to be paid-out over ten years. This equates to $2k per month. Using the national average discount rate of approx. 19% over these next ten years, comes out to about $112k to the owner of the settlement. The factoring company will realize 44% of the $200k.
If the discount rate was approx. 12%, the settlement owner would have gotten around $140k, which is approx. an additional $30k. As you can see, it makes a big difference what the discount rate is. The bottom line is to make sure you shop around, so that you will get the best structured settlement discount rate.
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