It's financial literacy month and time to bring back an old pantomime villain.
Car wash guy, erstwhile wannabe structured settlement expert and confessed key word manipulator Lance Winslow IV has resurfaced after 4 years with an article on structured settlement factoring that appears at 101settlement.com.
After doing a half decent job of explaining what factoring is in general, Lance Winslow presents an unrealistic explanation of the impact that factoring has on a structured settlement annuitant's long term financial security.
"Let us say you have a structured settlement and you cash out of the deal using the same type of company? They will get the structured settlement money each month instead of you, but you will have all the money up front minus a 10-15% discount on the total money you would have received. You can then use this money for whatever you want. Such as investing, buying a house or buying new car, plasma TV and other things humans want to make them happy. You see?
Lance Winslow appears to confuse the discount rate (or effective discount rate) used to calculate the present value that a seller could receive from a sale of structured settlement payment rights, with the percentage difference between the gross amount of the future benefits before the sale and the present value received after the sale.
Let's say you have a structured settlement that pays you $2,200 per month over the next 20 years, with the next payment May 5, 2010. The total payout over 20 years is $528,000 income tax free.
You find the home of your dreams and don't have enough for the down payment so you consider selling your structured settlement payment rights to a factoring company. You are fascinated by a late night commercial featuring Vikings doing the "can can", so you contact Thor Settlement Funding which tells you that its effective discount rate is 14.9%. This translates into an offer of $177,000 in cash, assuming a Court approves that the transfer of such payments is in your best interest.
$177,000 is approximately 1/3 of $528,000. Said another way, you forfeit approximately 2/3 of your future value by taking cash in 90 days or so. Sound good to you?
As I said 4 years ago, Lance Winslow may know suds but he ain't no stud when it comes to financial literacy on structured settlements.
Read our Lance Winslow archive
Financial Literacy Tip
Use a structured settlement factoring discount rate calculator to help you better understand the cost of money. The structured settlement factoring discount rate calculator puts cash strapped structured settlement annuitants in control.
Please note that certain structured settlements cannot be factored.