Key Concepts: Present Value and Discount Rate

Present value is the value today of money that you expect to receive in the future. Because of inflation and the time value of money, a dollar received in the future is generally worth less than a dollar received today. The present value calculation applies a discount rate to reflect this difference.

The discount rate is the annual rate used to reduce (or “discount”) future payments back to a value in today’s dollars. In practice, the discount rate for structured settlements reflects a mix of factors, such as interest rates, risk, fees, and the profit margin of any company that offers to buy your payments.

For many structured settlement scenarios, discount rates might fall somewhere in the 4%–12% range, but offers can be higher or lower depending on market conditions and your specific payment schedule. Even a small change in the discount rate can significantly change the calculated lump-sum value.

Core Formula Used in the Calculator

For a single future payment, the basic present value formula is:

where:

• PV = present value (today’s value of the payment)
• FV = future value (the payment amount you will receive)
• r = discount rate per period (for example, per year or per month)
• n = number of periods between now and the payment date

For a stream of equal payments at regular intervals (like monthly or yearly payments), the calculator applies this logic to each payment in the series and then adds the results together. If you have multiple payment series with different amounts or start dates, the tool values each series separately and then sums them.

How to Enter Your Structured Settlement Details

The calculator is flexible enough to handle many real-world settlement schedules by breaking them into one or more payment series. Here is how to map your paperwork to the inputs:

• Payment Amount ($): Enter the recurring payment amount for this series. For example, if you receive $1,000 each month for five years, the payment amount is 1,000.
• Frequency (one-time, monthly, quarterly, yearly): Choose how often this payment amount occurs. Use one-time if the payment happens only once.
• # of Payments: Enter how many times that payment will occur. For a five-year monthly series, enter 60 payments; for ten annual payments, enter 10.
• Start After (Months): Enter how many months from now until the first payment in this series. If the first payment is due immediately, leave this at 0. If it starts in two years, use 24 months.

Many structured settlements have more than one step or change in amount over time. You can represent that by creating multiple payment series:

• One series for your current payment level (for example, $1,000 per month for the next 36 months).
• A second series for higher payments that begin later (for example, $1,500 per month starting 37 months from now).
• Additional series for any scheduled lump-sum “balloon” payments.

The calculator adds all series to estimate the total present value of your settlement.

Selecting a Discount Rate

Choosing a discount rate is one of the most important and subjective parts of the calculation. Here are some general guidelines you can use as a starting point (not as advice):

• Lower discount rates (for example, 3%–5%) usually correspond to safer, lower-return investments and lead to a higher present value for your settlement.
• Moderate discount rates (for example, 6%–9%) might reflect a mix of risk, fees, and profit for a settlement buyer.
• Higher discount rates (for example, 10% or more) significantly reduce the present value and may signal a relatively expensive offer for you and a higher expected return for the buyer.

The right rate for your situation depends on your risk tolerance, financial goals, and the alternatives available to you. The calculator allows you to test several rates quickly so you can see how sensitive the lump-sum value is to that choice.

Using the Optional Cash Offer Field

If a company has offered you a lump-sum payment in exchange for some or all of your future settlement payments, enter that figure in the Cash Offer ($, optional) field. The calculator compares this offer against the estimated present value and can also infer the implied discount rate behind the offer.

In simple terms:

• If the implied discount rate is much higher than typical market rates for relatively safe investments, the offer may be on the low side for you.
• If the implied discount rate is only slightly higher than conservative market rates, the offer may be more competitive, although you still need to consider fees, court approval, and your personal situation.

This comparison does not tell you whether you should accept the offer, but it does give you a clearer sense of how aggressive or reasonable the pricing may be.

Worked Example

Suppose you are scheduled to receive $10,000 each year for ten years, with the first payment one year from now. You want to know what this payment stream might be worth today using a 5% annual discount rate, and you have received a lump-sum offer of $70,000.

Step 1: Set up the inputs

• Payment Amount ($): 10,000
• Frequency: Yearly
• # of Payments: 10
• Start After (Months): 12 (first payment is one year away)
• Discount Rate (%): 5
• Cash Offer ($, optional): 70,000

Step 2: Understand the present value logic

The first payment of $10,000 arrives one year from now. With a 5% discount rate, the present value of that first payment is:

The second payment is two years away, so its present value uses n = 2 in the same formula, and so on. The calculator repeats this for all ten payments and adds the results.

Step 3: Interpreting the result

The tool will display an estimated total present value for the ten annual payments at a 5% discount rate. It may also show the implied discount rate of the $70,000 offer. If the calculated present value is significantly higher than $70,000, and the implied discount rate is high, that suggests the offer is relatively expensive from your perspective. If the present value is close to $70,000, the offer may be more in line with your selected assumptions.

Interpreting Your Results

When the calculator finishes, you will typically see:

• An estimated total present value of your structured settlement or annuity payments based on the discount rate you entered.
• A breakdown by period (for example, by year), including each payment and its individual present value.
• If you entered a cash offer, a comparison between the offer and the calculated present value, plus any implied discount rate the buyer may be using.

Use these outputs as one input to your decision-making, not as a final verdict. Small changes in the discount rate, timing of payments, or assumptions about risk can shift the results. You can rerun the calculator with different discount rates or payment schedules to see a range of possible valuations.

Comparing Options: Keep Payments vs. Sell for a Lump Sum

Whether to keep your structured settlement payments or sell some (or all) of them for a lump sum is a major financial decision. The calculator can help you understand the trade-offs, but the right choice depends on your needs, alternatives, and risk tolerance.

The calculator does not tell you which option is “best,” but it makes the trade-offs more transparent by putting a current dollar value on your future payments.

Assumptions and Limitations of the Calculator

Every financial model relies on assumptions. Understanding these helps you use the results responsibly. This calculator generally assumes:

• Fixed payment amounts within each series: Each series you enter is treated as having the same payment amount for all payments in that series.
• Regular timing: Payments within a series occur at consistent intervals (for example, every month, every quarter, or every year).
• Selected discount rate remains constant: The discount rate you choose is assumed to remain the same over the life of the payments.
• No taxes, fees, or court costs modeled: The calculation generally ignores taxes, legal costs, court approval costs, and buyer fees, all of which can affect what you ultimately receive.
• No credit or default risk modeled: The tool assumes the payer of your settlement will make all scheduled payments in full and on time.
• Nominal values: The model typically uses nominal dollars (not explicitly adjusted for future inflation beyond what is embedded in your chosen discount rate).

Because of these assumptions, the estimated present value may differ from any formal valuation that a court, insurance company, buyer, or advisor provides. Real-world offers also build in additional considerations such as underwriting, administrative costs, profit margins, and regulatory requirements.

This calculator is an informational tool only. It does not provide legal, tax, or financial advice, does not guarantee what any buyer will offer, and should not be the sole basis for any major financial decision.

Frequently Asked Questions

How accurate is this structured settlement calculator?

The calculator uses standard present value formulas and the information you provide. Its accuracy depends on how closely your inputs reflect your actual payment schedule and a realistic discount rate. It is intended to give a reasonable estimate, not an exact figure that any specific buyer or court will use.

What is a reasonable discount rate for valuing my settlement?

Reasonable discount rates vary over time and depend on factors like interest rates, risk, and transaction costs. Many structured settlement valuations fall somewhere between 4% and 12%, but offers can be above or below that range. It is often helpful to test several rates to see how sensitive your results are and to discuss your situation with a qualified professional.

Can I sell only part of my structured settlement?

In many cases, it is possible to sell only a portion of your future payments, such as a specific number of years or a particular lump-sum payment. The calculator can still help in these scenarios by modeling just the payments you are considering selling and comparing the present value to your offer.

Why is the cash offer lower than the total of my future payments?

A lump-sum offer is usually lower than the sum of your future payments because the buyer discounts those payments for time, risk, fees, and profit. The calculator helps you see how much of that difference is explained by the effective discount rate and how that compares with your expectations and alternatives.

Does this tool account for taxes or legal fees?

No. The calculator does not automatically model taxes, legal fees, court costs, or any other expenses that may apply to your settlement or sale transaction. Those factors can materially change the amount you keep, so consider them carefully and speak with appropriate professionals.

Should I accept a lump-sum offer based on this calculator?

No single calculator can tell you definitively whether to accept an offer. The results are one piece of information you can use alongside your broader financial picture, risk tolerance, and advice from trusted professionals. You may also wish to compare multiple offers and review the terms and conditions carefully.

Using the Calculator Alongside Professional Advice

Structured settlements and annuities often involve significant sums and long time horizons. This calculator is designed to improve your understanding of how present value works and how discount rates influence the size of a lump-sum offer. It can also help you frame better questions when you speak with attorneys, financial planners, or settlement buyers.

Before making any binding decisions about selling your settlement, consider:

• Your current and expected future income and expenses.
• Any high-interest debts you might pay off with a lump sum.
• Your comfort with managing a large amount of money at once versus receiving income over time.
• The legal requirements in your state, including court approval and mandatory disclosures from buyers.

Use this tool as a starting point for informed conversations, not as a substitute for them.

How to Use This Structured Settlement Calculator (Step-by-Step)

1. Gather your settlement documents. Have your structured settlement or annuity paperwork handy so you can see payment amounts, frequencies, and start/end dates.
2. Break your payments into series. If your payments change over time (for example, $1,000 per month for 5 years, then $1,500 per month for 10 years), treat each distinct pattern as its own payment series.
3. Enter each payment series. For every series, enter the payment amount, choose the frequency (monthly, quarterly, yearly, etc.), set the number of payments, and specify how many months from now the series starts.
4. Choose a discount rate. Enter a reasonable annual discount rate (for example, try 4%, 8%, and 12%) to see how sensitive the lump-sum value is to this assumption.
5. Optional: Enter a cash offer. If a buyer has offered you a lump sum for your settlement, enter that amount so the calculator can compare it with the estimated present value.
6. Review the results. Look at the total present value and the per-year breakdown to understand how much of your settlement’s value comes from near-term versus long-term payments.

How to Interpret Your Result

The calculator’s output is an estimate of what your future payments may be worth today, based on the discount rate you chose and the payment schedule you entered.

• Compare against real offers. If a buyer’s cash offer is much lower than the calculator’s estimate at a reasonable discount rate, it may imply a very high effective discount rate (and a more expensive transaction for you).
• Test several scenarios. Run the calculator with a range of discount rates (for example, 4%, 8%, and 12%) to see a band of plausible present values rather than relying on a single number.
• Consider your financial needs and risk tolerance. A lower lump-sum offer might still be acceptable to you if you urgently need cash now, but it is important to understand the trade-off in long-term value.
• Use results as a discussion starting point. Bring your calculations to a licensed financial advisor or attorney to help you evaluate whether selling some or all of your payments is appropriate for your situation.

Limitations & Assumptions

This calculator is a helpful planning tool, but it does not provide a formal appraisal or legal advice. Please keep these limitations in mind:

• Estimates only. The results are approximate and based solely on the information you enter and the discount rate you choose.
• No guarantee of offers. Actual offers from structured settlement buyers can be higher or lower than the calculator’s estimate because of underwriting, fees, profit margins, state law, and court approval requirements.
• Taxes and costs not included. The calculator does not account for any taxes, legal fees, transaction costs, or court-related expenses that may apply to the sale of your payments.
• Timing simplifications. Payments are treated as if they occur on a regular schedule without modeling exact payment dates, weekends, processing delays, or partial periods.
• User-selected discount rate. The discount rate you enter is an assumption and is not a recommendation or personalized financial advice.
• No suitability or legal review. The tool does not assess whether selling your structured settlement is in your best interest or whether a proposed sale complies with applicable laws.

Before agreeing to transfer any structured settlement payments, you should consult a qualified attorney and/or licensed financial professional who can review your specific circumstances.

Additional Settlement Questions

Does this calculator tell me if a cash offer for my structured settlement is fair?

No. The calculator provides an estimated present value based on the information and discount rate you enter. You can compare this estimate with a buyer’s cash offer to see how aggressive the discount might be, but only a qualified professional who reviews your full settlement terms can help you assess whether an offer is fair and appropriate.

What is a typical discount rate when selling structured settlement payments?

Discount rates in structured settlement buyouts can vary widely depending on interest rates, your payment schedule, market conditions, and the buyer’s fees and profit margin. In many cases, effective annual discount rates might fall somewhere in the mid single digits to low double digits, but some offers can be significantly higher. That is why it is useful to test several rates (for example, 4%, 8%, 12%) in the calculator.

Are structured settlement sales taxable?

Tax treatment is complex and depends on your jurisdiction, the nature of your original settlement, and how the sale is structured. The calculator does not model taxes. You should consult a tax professional or attorney to understand the potential tax consequences before selling any portion of your structured settlement.

Does using this calculator replace getting professional advice?

No. This tool is for education and general planning only. Selling a structured settlement can affect your long-term financial security and legal rights. Always speak with a qualified attorney and, ideally, a licensed financial advisor before making any final decisions.

About This Tool

This structured settlement calculator uses standard present value methods commonly applied in finance and actuarial analysis to estimate the lump-sum value of future payments. It is intended to help you better understand the trade-offs between keeping your scheduled payments and accepting a lump-sum offer.

While the methodology is based on widely used financial formulas, every real-world case is different. For important financial or legal decisions, always rely on personalized advice from qualified professionals rather than on this calculator alone.

Methodology last reviewed: 2025.