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Structured Settlement Bone Yard

For as long as I can remember people have hated the industry I worked in—structured settlement factoring; terms such as white hat and black hat were often used. Financial professionals as well as some consumers have often compared us to the modern day equivalent of snake oil salespersons because we buy future payments. They imply that we’re doing something wrong for providing liquidity to assets that annuitants can’t use as collateral.

Lawyers and legal settlement planners with their crystal balls create settlements for individuals, planning out their future financial needs. At settlement or during a mediation they do what is believed to be best for the plaintiff and potential structured settlement recipient, but, in reality, we can’t foresee the future and the only certainty in life is death and taxes. People lose jobs, get divorced, owe taxes and suffer from illness without notice. Life changes and so do people’s financial situations. That’s why structured settlement factoring exists.

Financial pressure can be enormous. Sometimes people are desperate enough to do anything to get out of their situation and will make hasty decisions. Other times they just know what they need. They have weighed the options, done the math and selling some of the future payments makes sense. They don’t have to sell all the rights to their future payments, just enough to get what they need to help themselves out of a tough situation.

In every industry there are a few individuals or companies with questionable ethics. There are also companies where integrity and ethics prevail. These companies offer competitive pricing and look out for their clients’ best interest. Their rates are consistently lower than most credit cards, cash advances and payday loans. Also since selling future payments isn’t a loan they annuitant isn’t creating additional debt.

One huge misconception is that all factoring companies pay only a small fraction of what the payments are worth.  That is to say, the present value of a future payment today will be less than the principal amount when it comes to maturity.

Here’s an example that will help you understand. Let’s say Jane is offered the choice of $100 today (present value) or $100 next year what should she do? Take the money now because it is worth more now than in the future. When buying structured settlement annuity payments, a factoring company uses a mathematical calculation to figure out how much your future payments are worth in today's money taking into account inflation rates and interest rates. In addition, if Jane took the $100 today and invested it she would have more money in a year.

Many detractors want you to believe that the annuitant would receive a microscopic amount compared holding onto the annuity. They fail to consider the future value as well as the diminished buying power of the money. Seriously folks do you think the factoring industry would still be around if people were being swindled out of their money? Forty-six US States and the Federal Government have enacted consumer protection statutes to make sure these transactions are in the best interest of the seller. If New York State is an indicator, contracts with ridiculous rates will not be approved.

Selling future periodic payments isn’t something that should be done in haste. By researching the companies before you call them you can avoid the hassles of dealing with companies with bad reputations. If there are no complaints with the Better Business Bureau AND your state attorney general’s office, call for more information. Don’t be afraid to look on the Internet to see if others are complaining on websites like Rip off Report.

Make sure you get a few quotes before you sign on and get everything in writing. Don’t just take the company’s word for it, read everything they give you. Beware of hidden fees, bait and switch offers or salespeople trying to pressure you into signing. If you don’t understand what you’re reading have a trusted advisor review it. In a dog eat dog world of finance, don’t be caught wearing milk-bone underwear—look at for you and your best interest.

Posted by Dawn Anderson