Discount Rates Explained: What You Need to Know

Buyers apply a discount rate to convert future payments into present cash. This guide is informational only.

What Goes Into the Rate?

• Time value of money
• Administrative & legal costs
• Risk margin (insurer credit rating)
• Profit for the buyer

Example

Selling \$1 000/month for 10 years at 9 % yields a lump sum ≈ \$75 000 (ignoring fees). A lower rate increases cash; higher rate decreases it.

How to Compare Offers

• Ask for the effective annual rate, not just lump-sum.
• Get at least two quotes.