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Calculating Structured Settlement Payments

April 17, 2012 | Comments: 0 | Views: 151

Structured settlements are periodic installments paid to an individual over the duration of time. This type of settlements frequently occur in cases of personal injury claims. For instance, an insurance company agrees to compensate a complainant $300k over the duration of twenty five years.

This means the plaintiff will get a thousand dollars a month once the settlement starts to pay out. Nonetheless, the plaintiff may desire to liquidate their payments in a lump sum, either to reimburse off an existing debt, purchase a house or truck or pay off of any other urgent costs.

Accomplishing this depends on the time value of payments. The time worth of cash takes into consideration two determinants. First, inflation decreases the value money, so money now is worth more than money in the future. 2nd, money today can be invested and increase, while money guaranteed cannot grow in value.

To accurately calculate the existing value of a structured settlement or annuity, 1st enter the applicable discount percentage (8- 20%) followed by the payment stream of the settlement or annuity. To calculate the aggregate number of payments, employ the number of issued payments left in the cash flow (i.e. 60 payments = 50 years). Life conditional years have a greater discount percentage as a result of the life insurance that needs to be bought for these types of transactions. An increase in the discount rate is imperative for life contingent deals.

Determine The Present Remaining Value To Be Sent.

If the structured settlement has not begun to make payments, the sum should be the total amount of the settlement. Still, if you have begun to receive payments, tally the remainder. For example, if you have been getting a thousand dollars per month for 5 years on a $300,000 settlement, the existing balance of the structured settlement is two hundred forty thousand dollars

Call A Structured Settlement Cash Out Firm To Get Your Reduced Rate.

The discount rate will rest on actual numbers such as the length of your settlement and current and estimated inflation rates. The reduced rate will also depend on an uncertain variable: risk. The company making the payments for your settlement could go bankrupt and be unable to bear the cost of or complete paying your settlement. Laws may adjust, permitting the person or company to appeal and cease or lower payments. The lowered rate will probably average between 8 and 14 %.

Multiply The Present Worth Of Your Settlement By The Discount Rate To Find The Cash Out Worth.

This number will be amazingly lower than the current value. Take the prior instance. The value of the structured settlement is now $240k. However, when multiplied by a Fourteen % decreased rate, your lump-sum payout will be just over $33,000

Think Of How Much Money You Truly Need.

A structured settlement can be cashed out partially or completely. If you only want $10,000 to clear your debts or invest, think of cashing out only part of your structured settlement. This will permit you to maintain a steady income, though less than before, and make financial decisions your previously were unable to.

Still confused what your structured settlement is worth? Use our structured settlement calculator to estimate your lump sum payments.

Source: EzineArticles
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