This discount rate, which is typically between 6 percent and 29 percent, is comparable to the interest you would pay on a loan, says Grover Christopher Collins, managing partner at the Collins Law Firm in Nashville, Tennessee. As such, the lower the discount rate, the better the deal.
"You can negotiate," Collins says. "It's not a take-it-or-leave-it proposition; and you can also shop around."
Once you do accept an offer, however, the company will file a petition for transfer of the structured settlement in court in the state the company is in.
"The judge is the final arbitrator of whether it gets approved or not," Collins says. Rulings are made based on, among other things, what the person needs the money for, what the discount rate is and the structured settlement company's reputation.
Exact processes will vary depending on jurisdiction, but from the time a payee calls to the time they receive money can be as little as 62 days or as long as 90 days, Collins says.
David Lewis, senior vice president and general counsel with Stone Street Capital LLC, says few people sell their entire transactions at once. Payees usually sell a portion of their payments, just enough to meet their financial needs, and offers from companies are detailed in disclosure statements with discount rates and all the information they need to make an informed decision. Lewis says other factors that go into determining the payment amount include: in which state the payee resides, the payments they want to sell and the size of the payments.
"It gets pretty complex and, regrettably, has become more complex recently. The amount is a function of many factors, and these factors are more sensitive today than they might have been (in 2008)," says Lewis.
Lewis specifically points to insurance companies that have seen their credit ratings downgraded. The cost of funds and capital has also gone up, and developments throughout the credit markets can have big implications in the structured settlement industry. Right after the 2008 banking crisis, fear spread about the vulnerability of cash and assets kept in certain institutions. Despite the fear and bad press, many people weren't looking to cash in their payments in a panic that they wouldn't be there, Lewis says. A judge also would be unlikely to accept that fear as a reason for selling payments anyway.
"If someone called for that reason, we wouldn't do business with them and would just tell them not to be worried. We would be buying that annuity anyway, so if we thought it wasn't going to be good, we wouldn't be buying it in the first place," says Lewis.