Choosing a Buyer of Structured Settlement Payments
Posted in Lawyer for Life, Structured Settlement | |
If you are the recipient of structured settlement payments, but wish to receive an immediate lump sum payment, choosing a buyer can one of the more difficult, yet important, decisions you will need to make. There are a range of factors to consider, but ultimately price is the deciding factor. Understanding the elements that impact that price can be advantageous when one is looking for the right company with which to do business. Structured settlements are secure investments that should be held on to at all costs.
Factors to Consider
While price is, and should be, the most important factor in choosing who to sell one’s structured settlements payments to, there are other things to consider. First, certain companies deal with specific size parameters so matching one’s needs to the right company can save time. Secondly, it is usually prudent to limit the time a bureaucracy involved so as to keep the process streamlined. Finally, it is highly important to deal with a reputable company, so checking with local regulatory bodies to assure oneself that there are not a multitude of complaints against a given institution is wise. While this last step cannot completely protect you, it will go a long way to eliminating any highly dishonest operators.
Factors That Effect Price
As with an investment, the most important factor involved in determining price is the risk associated with the investment. A structured settlement from a highly reliable payer is more valuable that one from a payer that may be seen as unstable; if the payer becomes insolvent and is no longer able to make the required payments, the owner of those payments may either lose out completely or be subjected to significant expense to obtain the payments. Before one begins to shop one’s structured settlement around, it is a good idea to have a general sense of the credit quality of the party that is to make the payments.
The next major factor that will impact the price one can get for his or her structured settlement is the prevailing risk-free rate. This is the rate of return available on securities that are considered completely free of risk, such as U.S. treasuries. This is the minimum discount rate to which the determined risk premium will be added. If one applies this discount rate to the stream of future payments, the maximum amount that one could hope to receive can be determined. This amount will be far higher than the offers you will receive, but it is a good number to have at hand. This is the amount that if you received it today and invested it in risk-free securities would assure that you would receive the same amount as under the structured settlement.
The last factor that will impact the price that one will receive is any expectations about inflation that are priced into the market. Inflation expectations impact future expectations about interest rates. If rates are expected to rise, a buyer will be less willing to pay up for a future payments at a set rate. In the future, better rates may become available. Knowing what these expectation might be will give one a better sense of whether or not one is being made a competitive offer.