Plain English explainer
What is a discount rate?
The discount rate is the percentage we use to convert a future payment into a single dollar amount you would accept for it today. It is the answer to a simple question: “what is a dollar I won't see until next year actually worth right now?”
A higher discount rate makes future payments worth less today. A lower discount rate makes future payments worth more today. The discount rate decides how much of your future payments we will turn into a single check.
Why future money is worth less today
Three things are all true at once. First, a dollar today can be invested and earn interest, so a dollar tomorrow is worth less than a dollar today. Second, a payment you have not received yet is not guaranteed — the payer could miss a payment, the insurer could change hands, or the deal could fall apart. Third, getting cash today lets you put it to work now instead of waiting.
The discount rate bakes those three ideas into one number when we turn your stream of future payments into one lump-sum offer.
A worked example
Imagine you have a settlement that will pay you $1,000 every month for the next five years. That is 60 payments for a grand total of $60,000 on paper. But you want cash today, not $1,000 a month for the next sixty months.
You would not give us all $60,000 of those future payments for exactly $60,000 today — because we are taking the risk that the payments arrive on time, and we are giving up the use of that cash for the next five years. The discount rate is what sizes up that gap. Here is what the same exact payment stream looks like in today's dollars at a low rate versus a high rate:
| Discount rate | What we would offer today | Effective haircut |
|---|---|---|
| 5% per year | about $52,991 | −12% |
| 17% per year (our rate) | about $40,237 | −33% |
Same 60 payments, same $60,000 of nominal total, same going-forward risk — the discount rate is the only thing that moved. Low rate, the offer is closer to the face value of the stream. High rate, the offer drops because we are paying you sooner and absorbing more of the risk.
The discount rate decides which of those numbers you actually get.
How we use it
When you fill out the structured-settlement request form, the calculator on the same page shows you the present value in real time as you enter your payment schedule and how many payments you would like to sell. The discount rate on that calculator is fixed at 17% for every quote — it is not a negotiable knob, and you cannot tune it up or down to game the offer.
Once you submit, the same math powers the offer we send back to you: every future payment you are selling gets discounted at the same 17% rate, lump sums and recurring payments both. The number on the calculator is the number we will start from when we write your offer.
This page explains a general finance concept in plain language and is for educational purposes only — it is not a quote, not an offer, and not tax or legal advice. The rate Your Friendly Neighborhood Consulting Company uses for actual structured-settlement quotes is set out on the calculator itself.