Financial Considerations Flashcards
6 cards from real Sell Structured Settlement practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Considerations flashcards as text
What is the primary financial risk to a payee who sells all of their structured settlement payments?
Answer: Losing a guaranteed, reliable long-term income stream that may have been essential for living expenses
Selling all payments eliminates the stable, long-term income the settlement was designed to provide, which can leave the payee without financial support in the future.
Which of the following best practices can help a payee maximize the lump sum received when selling structured settlement payments?
Answer: Obtain competing quotes from multiple factoring companies and negotiate the discount rate
Comparing multiple competing offers is the most effective way for payees to negotiate better discount rates and maximize the net lump sum they receive.
What does the term 'net lump sum' mean in a structured settlement transfer?
Answer: The lump sum the payee actually receives after all fees, commissions, and court costs are deducted
The net lump sum is the actual cash the payee receives in hand after subtracting all fees, closing costs, and attorney fees from the gross present value the factoring company calculated.
How does inflation affect the real value of structured settlement payments over time for a payee who chooses NOT to sell?
Answer: Inflation erodes the purchasing power of fixed payments that do not have cost-of-living adjustments
Fixed structured settlement payments lose real purchasing power over time when inflation rises, unless the settlement includes a cost-of-living adjustment (COLA) provision.
What financial planning alternative might be preferable to selling structured settlement payments for a payee who needs short-term cash?
Answer: Taking a secured personal loan or home equity loan at a lower effective cost
Because structured settlement discount rates (9–18%) often exceed traditional loan rates, a secured personal loan or home equity loan may provide needed cash at a lower true cost.
What is meant by 'factoring' in the structured settlement industry?
Answer: The purchase of future payment rights at a discount in exchange for an immediate lump sum
Factoring refers to the practice of purchasing future receivables — in this case structured settlement payments — at a discount to provide the seller with immediate liquidity.