What is the Present Value of my structured settlement payments, and how is it calculated?
The Present Value, or PV, is an estimation of what your future payments are worth today, and is equivalent to the Purchase Price. It is literally the “present” value, as opposed to the actual amount of payments that will be made in the future. The PV is less than the actual payment that is due in the future. Present Value excludes the future “growth” of your annuity. Annuities are investments that “grow” based on an interest factor, just like you earn in your savings account at the bank. A dollar today, put in a savings account, might be worth $1.05 next year. The PV of anything represents the reverse calculation, meaning that the PV of a $1.05 due a year from now is $1.00 today. Payments issued through an annuity already include the interest earned. “Present” value refers to the value of the payment minus the growth, as calculated by the purchaser, based on a particular interest rate.
