Structured settlement payments result from lawsuits in which the plaintiff receives periodic payments and ongoing income or through another annuity of some sort. However, many people do not find a long-term stream of payments as beneficial as one lump sum.
A secondary market has evolved around structured settlements that allows consumers to sell all or a portion of their payments to a structured payment buyer. These buyers, or factoring companies, then pay the consumer a lump sum in return
What features matter most?
When considering quotes for structured settlement purchase from factoring companies, the purchase price or lump sum received can vary considerably due to the time-value of money. Companies will consider these factors when determining the purchase price of your settlement.
- Duration of the settlement: A dollar now is worth more than a dollar in the future. When obtaining quotes for selling a structured settlement, how soon the total settlement will be paid out to the consumer makes a difference in the purchase price. Buyers mostly prefer payments that will be made sooner to lessen their risk.
- Timing of the payments: The sooner the payments being sold will be received, the higher the purchase price will be. This can play a role in determining whether to sell all or some of the structured payment.
- Total amount of the settlement: Obviously, the total value of the settlement affects the purchase price today. However, structured settlements of lower value may not be as easy to sell for a lump sum.
Surrender charges & fees
Depending on the initial plan setup, surrender charges and fees must sometimes be paid when selling a structured settlement. Surrender charges are imposed by the company that owns the structured payments and is a way to recoup the money spent in creating the plan in the first place.
- Legal fees: Some companies charge a legal fee for surrendering your scheduled payments.
- Broker fee: If the factoring company is, or makes use of, a broker to secure the funds for the lump sum payment, there may be an associated fee. Often, this fee is worked into the final payment amount.
- Other fees: There can be other fees associated with the sale of a structured settlement including recording, filing, administrative and miscellaneous fees. These fees are usually deducted from the payment amount and do not have to be paid upfront by the consumer.
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 payments wants to do so at a discount because they are taking the risk of possibly never receiving the payments. The lower the discount rate, the better it is for the consumer. There are some important considerations for consumers when analyzing discount rates for the purchase of their structured settlement payments.
- Negotiate the rate: The interest rate quoted is not set in stone. When reviewing quotes, consumers should feel comfortable negotiating a better rate with each company. While there are standard rates at any given time, the purchaser is trying to get the highest discount and consumers should strive for the lowest.
- Shop around: The discount rate is one of the features of a structured settlement purchase that will vary widely from company to company and state to state. Be sure to shop around for the lowest discount rate and have knowledge of the current going rate.
- Understand the rate: Consumers who do not have a good comfort level with financial formulas should consult a professional or acquaintance that does. Quotes and the explanation for rates can be confusing and a good account executive at any company will take the time to help the consumer understand the full transaction.
Customer service options
When searching for a company to purchase future payments, access to customer service is extremely important. The process can be difficult for those with little financial, tax and legal knowledge and access to customer service can help to reduce fear and stress around the transaction.
- Customer service hours: Keep in mind that Customer Service hours vary based on time zones. For example, if a customer lives on the West Coast and the company buying the payments has East Coast hours, they may find themselves frustrated at 2:00 pm when they can’t get a hold of anyone.
- Online chat: Being able to get help instantly, and not having to wait on hold, can be an advantage when trying to understand and keep track of a transaction. Online chat gives consumers an opportunity to get answers immediately.
- Dedicated representative: Some companies provide a dedicated service professional for their clients for the duration of the transaction. This can help to avoid repeated explanations of the situation and reduce the stress of understanding a complicated financial transaction.
In order to avoid scams, consumers should do their homework and research companies who offer to purchase structured settlement payments. While some very reputable companies run late-night television ads, others who are not as reputable do as well. Researching a company’s reputation is not difficult and it’s an important step towards a successful transaction.
- Number of denials: A judge can deny the contract for the purchase of a structured settlement. Companies who offer the most professional service should have a low denial rate.
- Customer reviews: Finding unbiased customer reviews can warn of potential problems. Reviews not located on the company’s website are a good source.
- Dollars purchased: The amount of structured payments purchased by a company can be a good indicator of their health and stability.
What are different types of structured settlement companies?
A structured settlement broker, also known as an annuity broker, is a professional with specific training in structured payments. Brokers can aid in the whole process of obtaining an advance or full payout against the settlement.
Directly funded companies have their own sources of capital and are therefore free to make decisions on the purchase of settlement payments. Other companies must use a third party to guarantee funding which can lead to delays.