Sell Structured Settlement Knowledge Assessment — Questions and Answers

Question 1: What is a structured settlement?

A type of retirement savings account
A lump-sum payment from a lawsuit
A series of periodic payments made to a plaintiff following a legal settlement (Correct answer)
A government benefit program

Correct answer: A series of periodic payments made to a plaintiff following a legal settlement

A structured settlement is an arrangement where a defendant pays a plaintiff through a series of scheduled periodic payments rather than a single lump sum.

Question 2: What must a factoring company provide to the payee at least 3 business days before the payee signs the purchase agreement under most SSPAs?

A letter from the original judge who oversaw the injury case
A written disclosure statement showing the discount rate, fees, net payment, and total payment value being sold (Correct answer)
Proof of the factoring company's state license
A copy of the annuity contract

Correct answer: A written disclosure statement showing the discount rate, fees, net payment, and total payment value being sold

SSPAs mandate that factoring companies deliver a written disclosure — often called the required disclosure statement — at least 3 business days before the payee executes the transfer agreement.

Question 3: Which financial metric allows a payee to compare the cost of selling structured settlement payments to taking out a traditional loan?

Internal rate of return
Gross discount percentage
Net present value
Effective annual interest rate (EIR) (Correct answer)

Correct answer: Effective annual interest rate (EIR)

The effective annual interest rate expresses the transaction cost as an annualized rate, making it directly comparable to loan interest rates.

Question 4: Which US state was among the first to enact a Structured Settlement Protection Act?

Texas (Correct answer)
Florida
New York
California

Correct answer: Texas

Texas enacted one of the early SSPAs in the late 1990s, and its model influenced many other states' structured settlement transfer laws.

Question 5: What tax reporting form does a factoring company use to report a structured settlement transfer payment to the IRS?

Form W-2
Form 1065
Form K-1
Form 1099 (typically 1099-MISC or 1099-OTHER) (Correct answer)

Correct answer: Form 1099 (typically 1099-MISC or 1099-OTHER)

Factoring companies typically issue a Form 1099 to report the lump-sum payment made to a payee in a structured settlement transfer, reflecting it as potentially taxable income.

Question 6: If a payee sells structured settlement payments at a gain relative to the tax basis, what type of tax may apply?

Estate tax
Excise tax under Section 5891
Employment tax
Capital gains tax (Correct answer)

Correct answer: Capital gains tax

If the IRS treats the sale of structured settlement payment rights as a capital asset transaction, any gain over the tax basis may be subject to capital gains tax.

Question 7: Why might a payee with life-contingent payments receive a lower offer than one with guaranteed payments?

There is no difference in valuation between the two types
Life-contingent payments are worth more to investors
Guaranteed payments are taxable, reducing their value
Life-contingent payments carry mortality risk — they end if the payee dies, making them less certain for the buyer (Correct answer)

Correct answer: Life-contingent payments carry mortality risk — they end if the payee dies, making them less certain for the buyer

Life-contingent payments stop at the payee's death, creating uncertainty about the total amount the buyer will receive, which increases risk and reduces the offer price.

Question 8: What is the most common reason courts deny structured settlement transfer petitions?

The original settlement was for less than $50,000
The discount rate applied exceeds a set state maximum
The transfer is not in the best interest of the payee (Correct answer)
The factoring company failed to register with the state insurance department

Correct answer: The transfer is not in the best interest of the payee

Courts deny transfer petitions when they cannot affirmatively find that the transaction serves the payee's best interest, which is the central legal standard under most SSPAs.

Question 9: What is meant by 'factoring' in the structured settlement industry?

The process of auditing annuity issuer financials
Breaking down the settlement payments into smaller equal parts
A mathematical formula for calculating settlement values
The purchase of future payment rights at a discount in exchange for an immediate lump sum (Correct answer)

Correct 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.

Question 10: What is the term for a company that purchases structured settlement payment rights from a payee?

Factoring company (Correct answer)
Claims adjuster
Annuity issuer
Settlement broker

Correct answer: Factoring company

Factoring companies (also called purchasing companies) buy the right to receive future structured settlement payments from the payee in exchange for an immediate lump sum.

Question 11: What is the 'present value' of a structured settlement payment stream?

The amount the annuity issuer paid to fund the settlement
The current worth of future payments discounted at a given rate (Correct answer)
The total dollar amount of all future payments added together
The court-appraised value of the payments

Correct answer: The current worth of future payments discounted at a given rate

Present value is the current lump-sum equivalent of future payments, calculated by discounting each payment back to today's value using a specified discount rate.

Question 12: A structured settlement payee who is also receiving Social Security Disability Insurance (SSDI) — unlike SSI — is subject to what rule when they sell their payments?

The lump sum must be placed in a Special Needs Trust to protect SSDI
SSDI recipients cannot legally sell structured settlement payments
SSDI is always terminated when a large lump sum is received
SSDI is not means-tested, so the lump sum from a sale generally does not affect SSDI eligibility (Correct answer)

Correct answer: SSDI is not means-tested, so the lump sum from a sale generally does not affect SSDI eligibility

SSDI eligibility is based on work history and disability status, not asset levels — so unlike SSI or Medicaid, receiving a large lump sum from a settlement sale does not typically disqualify a recipient.

Question 13: How does inflation affect the real value of structured settlement payments over time for a payee who chooses NOT to sell?

Inflation causes structured settlements to be renegotiated automatically
Inflation has no effect on structured settlement payments
Inflation erodes the purchasing power of fixed payments that do not have cost-of-living adjustments (Correct answer)
Inflation increases the real purchasing power of fixed payments

Correct 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.

Question 14: What organization represents structured settlement purchasing companies in the US?

NASP (National Association of Settlement Purchasers) (Correct answer)
NSSTA (National Structured Settlements Trade Association)
NAIC (National Association of Insurance Commissioners)
FINRA

Correct answer: NASP (National Association of Settlement Purchasers)

NASP is the primary trade association for companies that purchase structured settlement payment rights, advocating for industry standards and consumer protection.

Question 15: Which of the following reasons for needing funds is most likely to be viewed favorably by a court reviewing a transfer petition?

Covering necessary medical expenses or paying off high-interest debt that threatens financial stability (Correct answer)
Funding a speculative investment
Purchasing a vacation home
Paying for discretionary luxury items

Correct answer: Covering necessary medical expenses or paying off high-interest debt that threatens financial stability

Courts are most favorable toward transfers where proceeds address genuine financial hardship, such as medical bills, housing needs, or eliminating high-interest debt.

Question 16: A payee in a state with an SSPA completes a structured settlement transfer without obtaining court approval. What is the most likely legal outcome?

The transfer may be void or voidable and the factoring company faces the 40% excise tax under IRC Section 5891 (Correct answer)
The payee must return the advance payment plus interest to the factoring company
The transfer is valid but the factoring company pays a small administrative fine
The transfer is retroactively approved after a hearing is held

Correct answer: The transfer may be void or voidable and the factoring company faces the 40% excise tax under IRC Section 5891

Transfers completed without required court approval may be void or voidable under state law, and the factoring company would also face the 40% federal excise tax under IRC Section 5891.

Question 17: Which factor does NOT typically affect the lump-sum amount a payee receives for their structured settlement?

The remaining term of the payments
The original defendant's name (Correct answer)
Current market interest rates
The dollar amount and frequency of payments

Correct answer: The original defendant's name

The defendant's identity has no bearing on the valuation — the lump-sum offer is driven by payment size, timing, duration, and the prevailing discount rate.

Question 18: What is the primary financial risk to a payee who sells all of their structured settlement payments?

Losing the ability to file future lawsuits
Owing money back to the defendant's insurer
Paying excess taxes on the lump sum
Losing a guaranteed, reliable long-term income stream that may have been essential for living expenses (Correct answer)

Correct 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.

Question 19: Which parties are generally required to receive notice of a structured settlement transfer petition?

Only the factoring company and the court
The IRS and state tax authority only
Only the payee
The annuity issuer, obligor, and any other interested parties identified by the court (Correct answer)

Correct answer: The annuity issuer, obligor, and any other interested parties identified by the court

SSPAs require that the annuity issuer, the obligor (insurance company), and other interested parties receive formal notice of the transfer petition so they can appear and object if warranted.

Question 20: What is the tax treatment of attorney fees paid from a structured settlement lump sum in connection with the transfer?

Always deductible as a business expense
Deductible as a miscellaneous itemized deduction
Generally not deductible by the payee under current tax law for personal transactions (Correct answer)
Deductible only if fees exceed 2% of gross income

Correct answer: Generally not deductible by the payee under current tax law for personal transactions

Under current federal tax law, attorney fees in personal (non-trade or business) transactions are generally not deductible as a miscellaneous itemized deduction, following the suspension under TCJA 2017.

Question 21: A structured settlement designed to compensate for lost wages — rather than physical injury — is treated how for federal income tax?

Taxable as ordinary income because lost wages are not excludible under Section 104(a)(2) (Correct answer)
Tax-exempt under Section 104
Subject to Social Security tax only
Tax-deferred until payments begin

Correct answer: Taxable as ordinary income because lost wages are not excludible under Section 104(a)(2)

Section 104(a)(2) only excludes damages received on account of physical injury or sickness — payments representing lost wages without a physical injury component are taxable.

Question 22: What is a 'structured settlement annuity secondary market'?

The market in which factoring companies and investors trade previously issued structured settlement payment rights (Correct answer)
A government marketplace for structured settlement transfers
A stock exchange for annuity products
The original market where annuities are first sold to defendants

Correct answer: The market in which factoring companies and investors trade previously issued structured settlement payment rights

The secondary market consists of factoring companies and institutional buyers that purchase existing structured settlement payment rights from original payees, providing liquidity.

Question 23: What role does the payee's attorney typically play in a structured settlement transfer proceeding?

The payee's attorney receives a percentage of the lump-sum payment
The payee's attorney approves the discount rate used by the factoring company
The payee's attorney prepares and files all court documents on the payee's behalf
The payee's attorney independently advises the payee about the transaction's terms and implications (Correct answer)

Correct answer: The payee's attorney independently advises the payee about the transaction's terms and implications

An independent attorney for the payee reviews the transfer terms, explains the consequences, and advises the payee on whether the deal is in their best interest — separate from the factoring company's legal team.

Question 24: If a payee has minor dependents, how does this typically affect the court's review of a structured settlement transfer?

Minor dependents have no bearing on the transfer review
The transfer is automatically denied if there are minor children
The court requires the children to appear at the hearing
The court scrutinizes the transfer more carefully to ensure children's welfare is protected (Correct answer)

Correct answer: The court scrutinizes the transfer more carefully to ensure children's welfare is protected

When minor dependents are involved, courts apply heightened scrutiny because the structured settlement payments may be the primary financial support for the children.

Question 25: Are the original structured settlement periodic payments received by a plaintiff for physical injury taxable under US federal law?

Yes, fully taxable as ordinary income
No, they are excluded from gross income under IRC Section 104(a)(2) (Correct answer)
Yes, but only the interest portion is taxable
Only payments above $10,000 per year are taxable

Correct answer: No, they are excluded from gross income under IRC Section 104(a)(2)

IRC Section 104(a)(2) excludes structured settlement periodic payments arising from physical injury or sickness from the recipient's gross income entirely.

Question 26: Which professional is best qualified to advise a structured settlement payee on the potential tax consequences of selling their payments?

A licensed tax attorney or CPA familiar with structured settlement transactions (Correct answer)
The annuity issuer's customer service department
The factoring company's sales representative
The court clerk

Correct answer: A licensed tax attorney or CPA familiar with structured settlement transactions

A tax attorney or CPA with structured settlement experience can analyze the payee's specific situation and provide accurate advice on taxability, basis, and benefits implications.

Question 27: A 'guaranteed' period in a structured settlement means:

The insurance company guarantees high returns
The government insures the payments
A set number of payments will be made regardless of whether the payee lives or dies (Correct answer)
Payments will increase each year

Correct answer: A set number of payments will be made regardless of whether the payee lives or dies

A guaranteed period ensures that a specific number of payments will be made to the payee or their estate even if the payee dies before the period ends.

Question 28: What does the term 'net lump sum' mean in a structured settlement transfer?

The before-tax value of the lump sum
The total face value of all payments being sold
The amount the annuity issuer returns to the factoring company
The lump sum the payee actually receives after all fees, commissions, and court costs are deducted (Correct answer)

Correct 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.

Question 29: After a court issues an order approving a structured settlement transfer, what is typically the next procedural step?

The IRS must separately approve the transfer
The order is served on the annuity issuer and obligor, who then redirect payments (Correct answer)
The factoring company must register the order with FINRA
The payee must re-litigate the original injury case

Correct answer: The order is served on the annuity issuer and obligor, who then redirect payments

Once the court order is entered, certified copies are sent to the annuity issuer and obligor directing them to redirect the sold payments to the factoring company.

Question 30: Which of the following would most likely cause a judge to deny a structured settlement transfer petition?

The payee plans to invest the lump sum conservatively
The payee is over age 65
The factoring company is headquartered in another state
The payee has no stated reason for needing the funds and the discount rate is 20% or higher (Correct answer)

Correct answer: The payee has no stated reason for needing the funds and the discount rate is 20% or higher

An extremely high discount rate combined with no compelling reason for the funds signals an exploitative transaction that does not meet the best interest standard.

Question 31: What are state-level laws governing the sale of structured settlement payments commonly called?

Payment Rights Assignment Laws
Annuity Transfer Acts
Structured Settlement Protection Acts (SSPAs) (Correct answer)
Consumer Finance Protection Statutes

Correct answer: Structured Settlement Protection Acts (SSPAs)

Virtually every US state has enacted a Structured Settlement Protection Act (SSPA) that sets out the requirements for a valid transfer of structured settlement payment rights.

Question 32: If market interest rates rise significantly, how does this generally affect lump-sum offers for structured settlement payments?

Offers are unaffected by market interest rates
Offers decrease because higher discount rates lower the present value calculations (Correct answer)
Offers increase to attract more sellers
Offers increase because future payments become more valuable

Correct answer: Offers decrease because higher discount rates lower the present value calculations

Rising market interest rates lead buyers to apply higher discount rates, reducing the calculated present value and therefore the lump-sum offer to the payee.

Question 33: Which organization provides professional certification for structured settlement professionals in the US?

SEC
FINRA
FDIC
NSSTA (National Structured Settlements Trade Association) (Correct answer)

Correct answer: NSSTA (National Structured Settlements Trade Association)

The NSSTA is the primary trade association for structured settlement professionals and supports the Certified Structured Settlement Consultant (CSSC) designation.

Question 34: What is the 'best interest' standard that a judge applies when reviewing a structured settlement transfer petition?

Whether the transfer maximizes the factoring company's return
Whether the transaction complies with IRS rules only
Whether the annuity issuer consents to the transfer
Whether the transfer serves the financial well-being of the payee and any dependents, considering the payee's circumstances and needs (Correct answer)

Correct answer: Whether the transfer serves the financial well-being of the payee and any dependents, considering the payee's circumstances and needs

Judges weigh the payee's financial situation, the purpose of the funds, the needs of dependents, and the fairness of the discount rate to determine if the transfer is in the payee's best interest.

Question 35: A seller signs a structured settlement transfer agreement but then changes their mind within the statutory period. What right do most SSPAs give the seller?

The right to rescind the agreement within a specified cooling-off period (Correct answer)
The right to reduce the amount sold but not cancel the entire agreement
The right to cancel only if the court has not yet been petitioned
No right to cancel once a valid agreement has been signed

Correct answer: The right to rescind the agreement within a specified cooling-off period

Most SSPAs include a mandatory rescission period allowing sellers to cancel the agreement within a set number of days after signing without facing any penalty.

Question 36: What is the standard way a factoring company calculates its offer to a structured settlement payee?

By referencing published IRS tables for annuity valuations
By discounting the future payment stream to a present value using the company's chosen discount rate (Correct answer)
By averaging competitor offers
By using the annuity's original purchase price as a baseline

Correct answer: By discounting the future payment stream to a present value using the company's chosen discount rate

Factoring companies apply a proprietary discount rate to each future payment to calculate a present value, which becomes the gross offer — minus fees and costs to arrive at the net offer.

Question 37: What is a 'qualified assignment' in the context of structured settlements?

A broker certification credential
A court order approving the original settlement
A tax-free mechanism where the defendant assigns the payment obligation to a third-party assignee company (Correct answer)
The payee selling payments to a factoring company

Correct answer: A tax-free mechanism where the defendant assigns the payment obligation to a third-party assignee company

A qualified assignment under IRC Section 130 allows the defendant to transfer the periodic payment obligation to a third-party assignee (typically an insurance subsidiary) on a tax-free basis.

Question 38: What is the consequence if a structured settlement transfer is completed WITHOUT a qualifying court order?

The factoring company owes a 40% federal excise tax under IRC Section 5891 (Correct answer)
The payee must return the lump sum immediately
The annuity issuer cancels all future payments
The transfer is valid but subject to a late fee

Correct answer: The factoring company owes a 40% federal excise tax under IRC Section 5891

IRC Section 5891 imposes a 40% excise tax on transfers that do not obtain a qualifying court order, effectively making non-court-approved transfers financially unviable.

Question 39: Which of the following is the most reliable way for a payee to find legitimate structured settlement buyers?

Accepting the first offer from any online advertisement
Researching NASP (National Association of Settlement Purchasers) member companies and comparing quotes (Correct answer)
Asking the annuity issuer to recommend a buyer
Responding to unsolicited phone calls offering to buy settlements

Correct answer: Researching NASP (National Association of Settlement Purchasers) member companies and comparing quotes

NASP member companies have agreed to ethical standards; researching and comparing multiple NASP members helps payees identify reputable buyers and competitive offers.

Question 40: What typical discount rate range do factoring companies apply when purchasing structured settlement payments?

25–40%
9–18% (Correct answer)
3–8%
0–3%

Correct answer: 9–18%

Factoring companies commonly apply discount rates in the range of 9–18%, though rates can be higher, representing the buyer's profit margin on the transaction.

Question 41: What financial concept explains why receiving money today is considered more valuable than receiving the same amount in the future?

Compound interest effect only
Time value of money (Correct answer)
Inflation risk premium
Liquidity preference theory

Correct answer: Time value of money

The time value of money principle holds that a dollar today can be invested to earn returns, making it worth more than a dollar received at a future date.

Question 42: Can a payee who is dissatisfied with the court's denial of a transfer petition appeal the decision?

Yes — the payee may generally appeal to a higher state court (Correct answer)
No — court denial of a transfer is final and cannot be appealed
No — the payee must wait 10 years before re-filing
Yes — but only to a federal court

Correct answer: Yes — the payee may generally appeal to a higher state court

A payee can appeal a denial through the normal state appellate process, though appeals are expensive and outcomes uncertain.

Question 43: What is a 'cooling-off period' in the context of structured settlement sales?

The time a court takes to schedule a transfer review hearing
The period a factoring company has to secure an investor
A window of time after signing during which the seller may cancel the agreement without penalty (Correct answer)
The delay between court approval and the seller's receipt of funds

Correct answer: A window of time after signing during which the seller may cancel the agreement without penalty

A cooling-off period gives the seller a specified number of days after signing to rescind the transfer agreement, protecting against hasty or pressured decisions.

Question 44: What is the tax basis of a structured settlement payee's payment rights for purposes of calculating gain on a sale?

The total present value of all future payments at the time of sale
The annuity purchase price paid by the defendant's insurer
Zero, because the payments were received tax-free (Correct answer)
The original settlement amount paid by the defendant

Correct answer: Zero, because the payments were received tax-free

Because the periodic payments are received tax-free under Section 104, the payee's tax basis in the payment rights is generally zero, meaning the entire lump sum from a sale may be a taxable gain.

Question 45: Who typically files the petition with the court to approve a structured settlement transfer?

The original plaintiff's attorney
The factoring company (or its attorney) on behalf of the transaction (Correct answer)
The payee independently
The annuity issuer

Correct answer: The factoring company (or its attorney) on behalf of the transaction

The factoring company typically bears responsibility for preparing and filing the transfer petition with the court and covering associated court costs.

Question 46: What information is typically included in a structured settlement transfer petition filed with the court?

The original injury settlement agreement only
Only the lump sum amount to be paid
The annuity issuer's investment portfolio
The full terms of the transfer, disclosure statement, payee's financial circumstances, and reason for needing funds (Correct answer)

Correct answer: The full terms of the transfer, disclosure statement, payee's financial circumstances, and reason for needing funds

A complete transfer petition includes the purchase agreement, required disclosures, financial details of the payee, the stated reason for needing the funds, and proof that notice was given to all parties.

Question 47: Which document formally transfers the rights to structured settlement payments to a factoring company?

Purchase and sale agreement (transfer agreement) (Correct answer)
Annuity policy
Court judgment
Insurance assignment form

Correct answer: Purchase and sale agreement (transfer agreement)

The purchase and sale agreement (also called a transfer agreement) is the contract between the payee and the factoring company specifying the payments being sold and the lump sum to be paid.

Question 48: What does an 'independent professional advice' requirement in an SSPA obligate the payee to do?

Attend a state-run financial education class
Use a court-appointed guardian ad litem
Obtain advice from an independent attorney, financial advisor, or accountant before completing the transfer (Correct answer)
Hire a financial planner paid for by the factoring company

Correct answer: Obtain advice from an independent attorney, financial advisor, or accountant before completing the transfer

Several states' SSPAs require that the payee receive — or at minimum be offered — independent legal or financial advice before the transfer is executed.

Question 49: Under a typical SSPA, the court approving a transfer must find that the transfer is:

Consistent with IRS guidelines
Approved by the original defendant's insurer
In the best interest of the payee, taking into account the welfare of dependents (Correct answer)
Profitable for the factoring company

Correct answer: In the best interest of the payee, taking into account the welfare of dependents

The 'best interest' standard is the central test courts apply under SSPAs — the judge must find the transfer serves the payee's and dependents' financial interests.

Question 50: What financial planning alternative might be preferable to selling structured settlement payments for a payee who needs short-term cash?

Taking a secured personal loan or home equity loan at a lower effective cost (Correct answer)
Purchasing additional annuities
Investing in high-risk stocks
Applying for government disability benefits

Correct 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.

Question 51: What does the 'effective annual rate' help a payee evaluate when selling structured settlement payments?

The true annualized cost of giving up future payments in exchange for a lump sum (Correct answer)
The annuity issuer's investment performance
The court filing fee schedule
The tax liability on the lump sum received

Correct answer: The true annualized cost of giving up future payments in exchange for a lump sum

The effective annual rate expresses the discount in annualized percentage terms, allowing the payee to compare the cost of the transaction to other financing alternatives.

Question 52: What is a 'qualified order' as defined under IRC Section 5891?

A final court order or judgment approving the transfer of structured settlement payment rights that meets federal requirements (Correct answer)
An approval order issued by a qualified financial institution that funds the purchase
A rating issued by a qualified settlement fund administrator
An IRS determination letter confirming the tax treatment of the transfer

Correct answer: A final court order or judgment approving the transfer of structured settlement payment rights that meets federal requirements

A qualified order under IRC Section 5891 is a final court order approving the structured settlement payment rights transfer that satisfies the federal requirements, thereby exempting the deal from the excise tax.

Question 53: Which consumer protection concern was the primary motivation behind the passage of SSPAs in most states?

Excessive delays in the court approval process
Annuity issuers refusing to honor their structured settlement payment obligations
Government agencies improperly seizing structured settlement funds
Factoring companies charging unfair discount rates and providing insufficient disclosures (Correct answer)

Correct answer: Factoring companies charging unfair discount rates and providing insufficient disclosures

SSPAs were enacted largely in response to factoring companies that applied steep discount rates and provided minimal disclosures, leaving uninformed sellers with far less than the fair value of their payments.

Question 54: What is the typical role of a structured settlement broker?

They file tax returns for structured settlement payees
They collect overdue structured settlement payments
They design and negotiate the payment structure on behalf of the plaintiff (Correct answer)
They represent the factoring company in court

Correct answer: They design and negotiate the payment structure on behalf of the plaintiff

A structured settlement broker works with the plaintiff and their attorney to design a payment schedule that meets the plaintiff's long-term financial needs.

Question 55: Does the sale of a structured settlement for a lump sum affect the payee's eligibility for means-tested government benefits such as Medicaid?

No — federal law prohibits considering settlement proceeds as assets
Only if the lump sum exceeds $1 million
Yes — receiving a large lump sum can disqualify a payee from Medicaid or SSI due to asset limits (Correct answer)
No, settlement proceeds are always exempt from Medicaid asset tests

Correct answer: Yes — receiving a large lump sum can disqualify a payee from Medicaid or SSI due to asset limits

A large lump sum from selling structured settlement payments can push a payee over asset thresholds for Medicaid, SSI, and other means-tested programs, potentially causing loss of benefits.

Question 56: Which of the following is generally NOT required to be disclosed to a seller under state SSPAs?

The factoring company's internal profit margin on the transaction (Correct answer)
The gross advance amount being offered to the seller
The effective annual discount rate applied to the payments
All fees and expenses to be charged to the seller

Correct answer: The factoring company's internal profit margin on the transaction

SSPAs require disclosure of the advance amount, discount rate, and seller-facing fees, but do not typically require companies to disclose their own internal profit margin.

Question 57: How does the remaining term of payments affect the lump-sum offer from a factoring company?

Longer remaining terms always result in higher offers
Remaining term has no effect on the offer
Shorter remaining terms always result in lower offers
Longer remaining terms result in greater discounting because payments further in the future are worth less today (Correct answer)

Correct answer: Longer remaining terms result in greater discounting because payments further in the future are worth less today

Payments that are further in the future are discounted more heavily because of compounding time value calculations, reducing the total present value.

Question 58: A payee receives two offers: Company A offers $42,000 at a 15% discount rate, and Company B offers $40,000 at a 17% discount rate. Which offer should the payee prefer, all else being equal?

Company B because a higher discount rate indicates a stronger financial company
Company A because a lower discount rate means more money and a better deal for the payee (Correct answer)
Both offers are equivalent
Company B because the discount rate is irrelevant

Correct answer: Company A because a lower discount rate means more money and a better deal for the payee

Company A's offer of $42,000 at a 15% discount rate gives the payee $2,000 more cash while also having a lower discount rate, making it clearly the superior offer.

Question 59: Which of the following best practices can help a payee maximize the lump sum received when selling structured settlement payments?

Accept the first offer received to avoid delays
Obtain competing quotes from multiple factoring companies and negotiate the discount rate (Correct answer)
Select the factoring company with the largest advertising budget
Sell all payments at once rather than partially

Correct 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.

Question 60: As of 2024, approximately how many US states have enacted their own Structured Settlement Protection Acts?

Nearly all 50 states (48+) (Correct answer)
About 10 states
Only federal law applies — no state laws exist
About 25 states

Correct answer: Nearly all 50 states (48+)

Nearly all US states (48 or more) have adopted SSPAs, creating a near-universal state-law framework requiring court approval for transfers.

Sell Structured Settlement Knowledge Assessment

This assessment tests knowledge of the structured settlement selling (factoring) process, covering legal requirements, court approval under state Structured Settlement Protection Acts, financial considerations, buyer pricing and discount rates, and federal tax implications for payees transferring payment rights.

Questions

90 min

Time Limit

70%

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