What Is A Structured Settlement?
You may have heard the term “structured settlement” tossed around from time to time during personal injury lawyer commercials or other personal injury advertisements. But what exactly is a structured settlement?
In plainest terms, a structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum. As part of the negotiations, a structured settlement may be offered by the defendant or requested by the plaintiff. Ultimately both parties must agree on the terms of settlement. A settlement may allow the parties to a lawsuit to reduce legal and other costs by avoiding trial. Structured settlements are most widely used in the United States, but are also utilized in Canada, England and Australia.
Structured settlements were first utilized in Canada as part of the settlement of birth defect claims arising out of pregnant mothers ingesting Thalidomide. Structured settlements are now used in a wide variety of types of lawsuit settlements such as aviation, construction, auto, medical malpractice and product liability.
Structured settlements may include income tax and spendthrift provisions. Often the periodic payments will be funded through the purchase of one or more annuities, that generate the future payments. Structured settlement payments are sometimes called periodical payments, and when incorporated into a trial judgment may be called a “structured judgment”.
Structured settlements pay out over time as a stream of tax-free payments, rather than one lump sum. You can “cash in” your future structured settlement payments by selling them to a factoring company at a discount if you need immediate cash. Most structured settlements stem from personal injury, wrongful death or workers’ compensation lawsuits.
Structured settlements are a stream of tax-free payments issued to an injured victim. The settlement payments are intended to pay for damages or injuries, providing financial security over time.
These payments are guaranteed by the insurance company that issued the annuity. They do not fluctuate with market changes like stocks, bonds and mutual funds.
There are more pros than cons for choosing to receive a structured settlement over a lump sum. Spreading out payments over time can reduce temptation, but once the terms of a structured settlement are finalized, there’s little you can do to renegotiate.
Structured settlements are rather simple. Many civil lawsuits result in someone or some company paying money to another to right a wrong. Those responsible for the wrong may agree to the settlement on their own, or they may be forced to pay the money when they lose the case in court.
A structured settlement is a regular stream of tax-free payments granted to the plaintiff in a civil lawsuit. Structured settlements are meant to provide long-term financial security to the injured party.
If the amount of money is small enough, the wronged party may have the option to receive a lump sum settlement. For larger sums, however, a structured settlement annuity may be arranged.
In this case, the at-fault party puts the money toward an annuity, which is a financial product that guarantees regular payments over time from an insurance company.
The agreement details the series of payments the person who was wronged will receive as compensation for the harm done to them. Spreading the money over a longer period of time offers a better future guarantee of financial security because a single payout can be spent quickly.