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August 25, 2020

Consumer Affairs Flops Seem to Have No Clue What a Discount Rate is in Relation to a Structured Settlement

by Structured Settlement Watchdog

Consumer Affairs is a pay for accreditation service that a number of structured settlement factoring companies use to elevate their standing for consumers.

Clark Kendall makes a poor attempt to explain the effective discount rate in a structured settlement factoring transaction.  He says:

"The discount rate offered for a lump sum payment on a structured settlement is similar to the interest rate that consumers pay on a standard consumer loan. The company buying the settlement wants to do so at a discount in order to turn a profit. For example, if you have a $100,000 structured settlement, a company may offer you a 20 percent discount rate, meaning you will receive 20 percent less than the value of your settlement, or $80,000.  The explanation belies Clark Kendall's credentials , which lists him as a Chartered Financial Analyst (CFA), Accredited Estate Planner (AEP) and Certified Financial Planner (CFP). He is the president and CEO of Kendall Capital in Washington, D.C., and a member of the Washington Society of Chartered Financial Analysts.

What a Discount Rate Actually Is

Very simply, a discount rate is the rate of return used to discount future cash flows back to their present value. Using the Present Value of a Future Sum Calculator, found at Calculator Soup, one can easily determine that the present value of $100,000 to be received one year from now, assuming at 20% discount rate is $83,333.33. Here's why it would not be $80,000 as Clark Kendall says. If you invested Clark Kendall's exemplar present value of $80,000 and it earned interest of 20% in year one, the future value would only be $96,000  ($80,000 principal plus $16,000 interest).

If we were asked to determine the Present Value of $100,000 to be received in 5 years with a 20% discount rate, the present value would be $40,187.76

It's a shame when people throw their credentials around but lack the sharpness to adequately and simply explain subject matter that their credentials suggest they should have.

 

 

Posted at 12:15 AM in Consumer Affairs Commentary, Factoring Company Bad Business Practices, False Advertising Re Creating, Buying or Selling Structured Settlements, Structured Settlement Factoring News, Structured Settlement Watchdog® |

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Guide to Structured Settlements 2022

  • What is a Structured Settlement? What You Need to Know
    What you need to know about structured settlements. General explanation of structured settlements, including the stable guaranteed income and favorable tax benefits that give structured settlements their "juice" and a helpful introductory video featuring 2022 A.M. Best Client Recommended structured settlement expert and Registered Settlement Planner John Darer® of 4structures.com® LLC
  • How Do Structured Settlements Work? How Structured Settlements Work | Structured Settlement Diagram
    How structured settlements work, including 4structures.com LLC's super helpful structured settlement flow chart/diagram showing how structured settlements fit in with other settlement planning solutions.
  • Rated Ages and Structured Settlement Cost
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  • Structured Settlement Annuity Companies 2022
    Which life insurance companies issue structured settlement annuities going into 2022? A list of current structured annuity issuers, the location of their home offices and their financial ratings from A.M. Best, Moodys, Fitch, Standard & Poors and/or other Tier1 NAIC ratings, with links to their websites and other useful information.
  • Treasury Funded Structured Settlements
    Treasury Funded Structured Settlements are a settlement option for the most conservative using the OTHER permissible qualified funding asset under IRC 130(d), United States Treasury Bonds in addition to, or instead of, structured settlement annuities. Treasury Funded Structured Settlements can also be used to fund installment sales, also known as structured sales and other non qualified structured settlements.
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    Use the Taxable Equivalent Yield chart to help compare the Internal Rate of Return (IRR) of a structured settlement to other alternative or complementary investments. Need help with the chart? Call 4structures.com® LLC at 888-325-8640
  • Structured Settlement Payments | Types of Structured Settlements
    Ways You Can Structure Your Settlement Payments. With a structured settlement you can have more than one type of payment in a single contract. Different types of structured settlement payments can be customized and combined to meet your needs on a stand-alone basis, or in conjunction with other financial products. Diversify your structured settlement, if you wish, by funding with more than one annuity issuer, with treasury funded structured settlements, index linked structured settlement payments and market based structured .
  • Structured Attorney Fees for Tax Deferral for Contingency Fees
    Structured attorney fees is a financial strategy that offers a unique way to defer taxes for lawyers and law firms. Lawyers CAN structure their legal fees even if the plaintiff doesn't structure their settlement. There are multiple ways to structure your attorney fees, such as the an index linked structured settlement where payments are adjusted based on upside changes in the S&P 500 with no downside and a cap of 5%. Trial Lawyers may also use a special deferred pay/deferred compensation arrangement, if market based returns returns are desired with no cap. Plan NOW for year end! Put structured attorney fee expert John Darer® on your settlement planning team.
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  • Structured Settlement Quote Lock-Ins | What You Need To Know
    What does a Structured Settlement Lock-In Mean? How do plaintiffs, defendants and insurers benefit from a structured settlement quote lock in when finalizing a settlement? How does the defendant/insurer/court benefit from using a structured settlement lock-in? Where to be careful when using structured settlement lock ins.
  • What Are Structured Settlement Annuities?
    Structured settlement annuities are annuities that can provide one or more customized annuity payment streams in a single contract. Read about structured settlement annuities here.
  • History of Structured Settlements
    Tracing the roots of structured settlements history from 1918, when Congress exempted damages for personal injury or sickness from income tax, to the establishment of structured settlements as a core personal injury settlement planning tool to the present day.
  • What Are Market Based Structured Settlements?
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