Sometimes, those “sure thing” annuity payments become a burden – holding you back from doing what you really want to do. It’s not as though an annuity is inherently bad. It’s just inherently restrictive. Now, sometimes, you need to be restricted so that you don’t blow through your retirement savings. Other times, what you really need, is a fat lump sum of cash. Here’s how you get it.
Finding A Credible Company
Finding a settlement funding company isn’t all that difficult. Finding a credible one, is. Don’t bother with the Better Business Bureau. Companies pay to be a part of that. Plus, it only tells you about reported problems. What you want to do is check with past customers.
Start calling up companies and ask for referrals. Check Internet forums. Check abuse sites like Rip-Off Report. Keep in mind that you’re always going to find complaints about a company. What’s important is to separate out the legit claims from the people who are just whining.
If a past customer had a bad customer service experience, it could just be a bad apple at the company. However, if you see a never-ending list of negative reviews spanning a long period of time (i.e. years), then it could be indicative of a larger problem.
Look for court cases where the company has been sued and comb over the details. What were they sued for? How did the company handle the case? What was the specific charge?
Finally, call up some companies and talk to the customer service people. What are they like? Ask what it’s like working for the company. Try to ferret out the “yes men” in the company and talk to representatives that can tell you the good and the bad – there’s always negative aspects in every company.
Talk to the sales department and ask about the discount rate applied to the buyout. While seeking cash for structured settlement payments can help you pay for large one-time expenses, there’s a cost associated with getting that lump sum. Every funding company charges both a fee and pays what’s called a “discount rate” for your annuity payments.
For example, if your lifetime annuity payments would total $1 million over 20 years, you won’t get $1 million from the funding company. You’ll only get a fraction of that – an amount of money that, when invested at the discount rate, would equal the $1 million over 20 years. So, if the funding company’s discount rate is 8 percent, they will discount 8 percent, compounded annually, for 20 years and give you the resulting amount. On a million, you would only receive a few hundred thousand dollars.
The lower the discount rate, the better. It means they are discounting less off of your total payments. Also, the lower the service charge the company assesses, the better.
Setting Reasonable Goals
Set reasonable goals for your buyout. Only sell what you need. For example, if you know you’ll need only $10,000 for emergency funds, only sell enough of your annuity payments to get the $10,000. Also, ask about simply lowering your remaining annuity payments, rather than eliminating them altogether.
Getting Everything In Writing
Get everything in writing. It seems obvious, but a lot of people fail to do this. Don’t trust a salesman’s word, because they’re often trained to tell you what you want to hear in order to get you to sign on the dotted line. If a salesman makes a promise to you, make sure he’s willing to put it in writing. Then, always get a copy of what was promised and make sure it is in the final sales contract before you sign.
Anthony Jensen is an experience banker. He often writes for finance blogs to help people make wise decisions about their money.