Calculating today’s cash value of an annuity or structured settlement involves several variables, including interest rates, demand and how much money one needs. Those conditions, which are always in flux, will ultimately determine how much money an individual will receive from selling annuity payments, why one might not get all the funds at once, and what is owed in taxes.
The amount one is likely to receive from selling annuity depends on a number of factors including:
- Time Value
Fluctuating interest rates will also tip the scales on the total amount you receive. For example, if you invest $1,000 at 5 percent interest, compounded over 10 years, it will grow to $1,628.91. But if that same amount were sent to you a decade from now as part of your structured settlement, it would still only be worth $1,000 because of inflation and time value of the investment.
When the time comes to try to cash in on a structured settlement it is likely that one will receive many offers from multiple buyers. Obviously, the higher the buyout the more appealing the offer will seem to the seller. Selling a structured settlement should be a “go slow” decision rather than reactive or impulsive. A beneficiary should recognize the true value of what they have and make all their decisions based on good information. The whole process could take 45 to 60 days, even if everything goes smoothly, so this is not really “now!” money.
When considering offers it is important to understand the demand that exists in the marketplace for such settlements. The higher the demand, the more lucrative the payout should be. Currently the demand is not as high since the economy is still recovering and as such a number of people have been looking to cash in on their settlements. Like anything else, how appealing structured settlements are to buyers has to do with supply and demand.
Better Than A Loan
If you need cash and you have access to a structured settlement, it can actually be a better alternative to taking out a loan because it doesn’t require any credit checks and you’re not left with debt. As long as the seller carries out thorough research, selling structured settlement payments is the safest financial transaction a consumer can enter into. Since most states have laws that govern how a settlement can be sold, it is generally safe to sell to a willing buyer. The ultimate sale requires a judge to look over the deal to ensure that it is fair. This is for the protection of the seller since the judge will help determine if the rate at which the settlement is being sold for is ethical and accurate based on demand, inflation and time value.
Determining exactly how much a structured settlement in general sells for is virtually impossible since every case is unique. It really ultimately depends on the current conditions in the marketplace at the time of sale. Regardless, the seller should be aware of restrictions that may exist on selling the settlement. One should know the tax consequences as well as what the impact of selling will be on one’s future financial situation.