Selling Structured Settlements in the Current Rate Environment

August 23, 2012 – In testimony on July 17 before the Senate Banking Committee, Fed Chairman Ben Bernanke, stressed that the economy has begun to lose positive momentum over the past few months and will likely continue to expand only moderately.  Furthermore, he stressed that the Fed remains poised to act if troubles in Europe and elsewhere increase causing the US economy to begin to contract.

The Federal Reserve is empowered by Congress with a dual mandate:  1) to control inflation; 2) to promote full employment.  The Fed exerts influence on the economy through loose monetary policy (low rates, plenty of availability for banks to borrow and freely lend) or, in times of robust growth and full employment, by tightening monetary policy (increasing rates and restricting the supply of money available to lend).  By the Fed’s measures, inflation is not a concern right now, but the unemployment rate remains a huge worry.  While Bernanke did not offer any specifics about when and how the Fed might intervene one thing has become increasingly clear:  the current period of extremely low interest rates appears here to stay for the foreseeable future.

Interest rates are extremely important to sellers of structured settlement payments as interest rates, more than any other single factor, influence the price paid to the seller in the secondary market.  As interest rates stay low the dollar for dollar value of future payments increases.   In short, companies involved in the purchase of structured settlement payments can be more aggressive with their offers to customers given the fact that the likelihood of rapidly rising interest rates appears to be very small at the present time.

When structured settlement companies buy future payments they do so by paying a discounted present value, in the form of a lump sum, to the original payee.  That lump sum paid by the factoring company is then later realized, plus a gain, through the receipt of periodic payments overtime directly from a life insurance company.  This payment of a fixed price for future dollars creates a fixed return over the life of those future payments.  As with any fixed rate investment, a fixed yield creates opportunity cost.  Could the money be invested elsewhere to provide a higher return?

If you face a financial situation that requires the sale of a portion of your structured settlement payments then we are here to provide straight answers to your questions.  Please give us a call toll free at 888-638-0900.

August 23rd, 2012

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