by John Darer® CLU ChFC MSSC RSP CLTC
In its Personal Injury Settlement FAQ Lawyers.com states that "usually companies will pay you 20 to 50 cents on the dollar to purchase your right to future (structured settlement) payments". This conjures up the classic image of Louis Winthorpe III trying to unload a $6,955 "Ross Fuquot" watch in a Philadelphia pawn shop in the movie Trading Places. Setting aside the irony that the leading structured settlement "pawn broker" resides on the outskirts of Philadelphia, does the Lawyers.com Personal injury settlement FAQ present an accurate depiction?
Let's say we have an annuitant who is seeking to raise money and is contemplating the sale of structured settlement payment rights of $1,000 per month from January 1, 2011 for 120 months. This represents a total payout of $120,000 in income tax free payments.
The following tables shows the effective discount rate and percentage of future value recovered through such a sale.
Cash Raised Discount Rate Pct of Future Value
$30,000 35.699% 25%
$35,000 33% 29.16%
$50,000 19.65% 41%
$65,000 12.98% 54%
$70,000 11.23% 58%
$77,500 8.936% 64%
The results below the line represent a much fairer depiction of what annuitants trying to sell structured settlement may be able to get in today's market IF they shop around or go to a factoring exchange. Shopping around also means that the annuitant who has no alternative but to raise cash in this manner, who takes the initiative, can leave more payments intact.