For someone receiving a structured settlement, selling their settlement payments in return for a lump sum payment may sound tempting; especially if they have just suffered a major life event such as a death in the family or income ability-limiting injury. If this is the case, the settlement recipient should definitely make use of a structured settlement calculation to determine whether or not the lump sum offer is fair or not. A good calculator might calculate both the effective discount rate (a financial metric that determines the worth of how much the payments might be worth in the future) and the hopefully small annual discount rate of the transaction. Settlement recipients, brokers, and judges among others often use these calculations to figure out this discount rate. Keeping in mind that a smaller percentage is better which would mean more money in your pocket, the pros generally use 14 percent as a benchmark (lower should be alright, higher should be rejected).
A structured settlement calculation might be processed like this: The present worth or lump sum offer a company has given for the settlement is first entered. Then the remaining data is composed of the number of disbursements, next disbursement date, and the amount of the disbursements. That information should be enough to produce the effective rate and the annual discount rate as well. Sounds easy, right?
The structured settlement calculation is a great tool to be sure, but I would definetly recommend you consult with a funding company to get a real-life quote for your settlement. You can do all of the calculations you like, but only the companies themselves can really give the hard and fast numbers on what you will actually get for your settlement should you decide to sell. Most of the larger companies websites offer online quotes after you enter the numbers they ask for (usually the numbers mentioned above). This is a quick, easy, and most of all free way to comparison shop for the best rates. You may not get the exact numbers for what you will be paid, but at least way you can get a general idea about who will give you the best value for your structured settlement.
So with all of this in mind, why not sell your settlement for a lump sum payout tomorrow? Well, one of the biggest reasons is that the lump sum you receive (even at the best possible discount rate) could come in at thousands of dollars below the sum of your settlement payments which could be counterproductive for someone looking to invest the payout. The reason these buyouts exist is to provide an emergency bailout for people who have money coming to them already but who need multiple payments all at once for some reason or another. The potential return may not (and in this turbulent economic climate, probably WILL not) offset the loss. Even if the issuing settlement company says that the client cannot trade the structured settlement for a lump sum, the funding company or the clients lawyer can work within their states laws to make the transaction go through anyway.