Determining the Optimal Payment

After you have carefully thought through the ramifications of selling your structured settlement payments there are three factors that must be considered when determining what is the optimal payment set to be sold in a structured settlement annuity:

1. What are the immediate and medium term cash needs of your client?

2. What are the fixed costs of the sale and transfer?

3. What are the long-term financial planning goals?

Below I'll discuss each of these factors.

1. It is important to accurately assess how much cash is required by your client now. Often clients will underestimate this need and then have to resort to a further partial sale of payments in six months to a year thereby doubling the processing costs. It is better to overestimate the immediate and medium term needs to avoid double cost penalties.

2. There are significant fixed costs associated with a sale and transfer of structured settlement annuity payments. These costs include transfer legal fees and court costs, independent professional advice fees (mandatory in some states), insurance company transfer fees (ranging from $500 - $800 in most cases), lien search costs, courier costs, and wiring fees. Depending on the state and insurance company involved, often the total fixed costs can exceed $3,000.00.

When considering splitting a payment (partial to be sold while balance to be retained) it is important to understand that insurance companies have the right to object to such a transaction. As well, some insurance companies charge double the transfer fee as they must now make two payments instead of one.

The discount rate obviously goes up when the fixed costs comprise a greater proportion of the present value being sought by your client. This provides another reason for your client to generously estimate the funding amount they require now so as to spread the fixed costs over more payments being sold.

3. In many structured settlement cases the long-term care or retirement of your client was considered when designing the original payment stream. If the seller is currently working but planning to retire in a few years, it may be better to sell the immediate payments and keep the future payments to supplement retirement cash needs. On the other hand, further out payments fetch a lower discount rate so it may be more financially beneficial to sell them first.