RE: How do you sell a structured settlement?
I am wondering how to sell a structured settlement from a lawsuit? How much money do you lose from doing it? If i got 20,000 when im 25, and 400000 when im 30, how much could i make in a lump sum now at 20? I need to pay for college, but im clueless about how this works and I do not want to be scammed. Thanks
A structured settlement is basically an annuity. It has a net present value based on the cash flow and you can sell it for no more than that value as the buyer will also be wanting some of the value. Think of it as how much would have to be put away in a readily available risk free investment in order to provide for the payments you are to receive and the sum of what you have to put away in order to provide for those payments is the value of the structured settlement. For example, the current 10 year US Treasury bond rate is 2.997% per annum and this is typically used as a proxy for an available risk free investment. If you had an available risk free investment opportunity that paid 2.997%, you would only have to invest $20,000 / 1.02997^5 or $17,254.69 in order to provide for that $20,000 payment five years from now and you would only have to invest $40,000 / 1.02997^10 or $29,772.43 so the value of a structured settlement that provides a $20,000 payment in five years and a $40,000 payment in ten years can be no more than $47,027.12 because at that point you could just invest in the available 2.997% investment opportunity instead of buying the settlement. Now whomever wants to buy the settlement from you will probably use a different rate than the 10 year US bond rate as their risk free rate and it will be a rate based on what they feel they can achieve with their investments, they will probably call it their required rate of return, if their required rate of return is 10% then your structured settlement would be worth no more than $27,840.16 to them. So actually the value of your settlement is quite high at the moment due to the low interest rates and will drop as interest rates rises.