To Sell All, or Part, That is the Question…

April 4, 2014 – In 2014, it is difficult to imagine that anyone receiving annuity payments under a structured settlement annuity contract does not know that laws exist to allow a sale, or transfer, of those future payments for a lump sum in the secondary market.  Too often, however, individuals fall prey to sales tactics that do not present payees with an alternative to selling all of their remaining guaranteed payments.  It is in the best interest of a factoring company to purchase as many payments as possible, since all are purchased at a discounted present value.  It may or may not be in the best interest of the payee to do the same. 

The reality is that the farther out in the future that payments are due, the less they are worth in the secondary market today.  In order to illustrate this point, we present three separate scenarios below assuming a hypothetical discount rate of 10%.  Scenario #1 illustrates selling 10 years of payments at $1,000 per month, #2 carries this math out to 15 years, and #3 carries the illustration all the way to 25 years; $120K, $180K, and $300K in future payments respectively.                                                                                                         

Scenario #1; 10 years, $1K per month; $120K sold in total:  $75,000 value today

Scenario #2; 15 years; $1K per month; $180K sold in total; $92,300 value today

Scenario #3; 25 years; $1K per month; $300K sold in total; $109,000 value today

As shown above, the impact of the passage of time on the value today is substantial.  The last 10 years of payments available in Scenario #3 ($120K in total future dollars) are only worth about $17,000 in today’s dollars whereas the initial 10 years (also $120K in total future dollars) are worth $75,000 today.  Said another way, in order to raise an additional $17K today, an individual would need to sell 15 years of payments versus 10.  In order to raise around $17K MORE, an individual would need to sell 25 years of payments.  That’s another $120K in future payments, worth only $17K. Payments due from years 16 – 25 are worth about half as much today as those due from years 11 – 15, and less than 25% as much as those due in years 1 – 10.

If you are considering selling your structured settlement annuity payments, then we think you should be mindful of three things: 

  1. Determine how much you need to raise upfront and work from there with the idea that the goal should be to sell the minimum number of payments possible to meet your financial need.
  2. Do not sell everything just because a salesman says it is a good idea.  Be skeptical of any company that does not fully disclose the real value of your payments.
  3. Discuss several scenarios.  It may be in your best interest to sell more than ten years of payments.  The factoring company should be willing to run as many scenarios as it takes until you settle on the exact formula that meets your needs.

We are Annuity Transfers.  We have been buying structured settlement payments for over ten years in the secondary market.  We maintain an A+ rating with the Better Business Bureau, free of complaints.  We treat every situation as unique because every situation is unique.  Annuity Transfers is here to help.  Call us toll free at 888-638-0900.  We look forward to talking to you.

April 4th, 2014

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