You have probably heard the term “Structured Settlement” on a television or print ad and wondered what it meant. After all, the term is not a part of our everyday lexicon.

A structured settlement is a contract under which an insurance company undertakes to make periodic payments to an injured party as part of a bodily injury claim settlement or to a surviving family member to whom a large settlement has been awarded. These are just two examples of where a structured settlement might be used. Structured settlements have become popular because they offer substantial benefits to all parties involved in the settlement agreement.

A brief review of the dictionary reveals the following definition: a structured settlement is simply a financial package that permits a settlement to be paid in regular payment installments for either a set period of time or over a lifetime. In short, a structured settlement is a package that is tailor made for the individual or payee by the payer or an interested third-party. Some structures include immediate payment to cover any special damages that may have occurred or will occur.

The system of structured settlements was first introduced in Canada in the early 1970′s and spread into the United States very quickly. Within a few years, the idea had found its way to many countries including Australia and most member states of the European Union.

Benefits of a Structured Settlement

A structured settlement annuity provides a payment stream that is tax-free over a determined period of time. Most investment options such as stocks and bonds, real estate, savings accounts, and similar vehicles simply cannot match the flexibility and security of a Structured Settlement Annuity.

Another benefit of a structured settlement annuity is that it can be designed so that payments are made over an extended period of time, even throughout the life of the payee. In the event of the recipient’s death, a guaranteed portion of the settlement may be paid to the person’s estate or to a named beneficiary.

Structured Settlements have become quite common and offer the additional security of regulation by both Federal and State statutes. There are also provisions in IRS and Medicare/Medicaid guidelines which take them into account.

Alternatives to Structured Settlements

It’s quite easy to see that a structured settlement can work to the advantage of all parties in a variety of circumstances. However, there are occasions when the beneficiary of a structured settlement would prefer not to have periodic payments, preferring instead a lump sum payment. Such might be the case where an individual would like an amount of money to purchase a home, perhaps to cover large medical bills or to pay off a mortgage.

This option has also proved especially popular with lottery winners. There are a number of insurance companies and others that provide this service for a fee. In such instances the insurance company or another interested third-party makes the lump sum payment with a charge for expenses and interest deducted. It is important to consider these fees and read the fine print carefully to be sure that you are not signing away the bulk of your payment.

How do the alternatives work?

The settlement contract is sold to a financial institution which then accepts the periodic payments from the payer and gives the beneficiary a lump sum. Commonly, the financial institution involved will be another major insurance company.

The insurance company charges a handling fee which will usually be calculated to take into account adjustments for interest charges and handling costs. Again, if you are considering taking this option you must bear in mind that the company buying the payments for a cash sum is in business to make money. The amount of the one-off payment will certainly be considerably less than the gross amount that would have been received over the original extended period.

Unless the amount of the lump sum is very substantial and the recipient can be sure of consistent investment income, it’s almost certainly going to be better to stick with the original arrangements. An exception might be where the recipient is a younger person in good health with a substantial expectation of gainful employment for the long term.

Again, as with any contracts be sure to read and understand the terms of the agreement you are making. Make a list of questions and ask until you understand. It is also a good idea to cast a wide net when looking for an alternative to structured settlements as fees and services; and thus your bottom line can vary greatly.

Structured settlements are used to structure the financial and insurance payouts in lawsuit settlements. They are instrumental in resolving some personal injury tort claims or statutory periodic payment obligations.

Structured Settlement Arrangements

These arrangements usually arise in the following way:

The injured party settles a tort case with the defendant. Under the terms of the settlement, the injured party agrees to dismiss the lawsuit in exchange for a series of payments over a period of time. Both parties agree on a payment arrangement that is often insured by a third party.
Periodic Payment Guarantees

In order to fulfill the long-term periodic payment obligation, the defendant is often required to insure the periodic payments in one of (more…)

The days of receiving one big payday from a personal injury lawsuit are long over. The legal system is always evolving, and right now, the common trend is for lawsuits of all sorts to settle out-of-court with a structured settlement. This means that instead of paying the entire amount due right away, the insurance company or other defendant is allowed to pay the injured party over a period of time through an arranged schedule.

The plaintiff that has been injured often agrees to this settlement in order to end the case without being dragged through a very lengthy and expensive court case. It actually can be to the benefit of everyone involved to come to an agreement outside of court, even though the one injured would likely prefer to have one lump sum paid right away. If they want the case settled quickly, that is usually no longer an option. Even if they hold out for a court judgment, they are likely to be stuck with a structured settlement, regardless.

The most obvious disadvantage to this agreement is that the injured party will not receive the money awarded for a long period of time. All of the ongoing medical bills due to (more…)

Structured settlements are a method of compensating people who have been injured as a direct result from another party who is in the wrong. At one time there were only lump sum payments available for those who were injured, but after 1970 there was a need for this to be changed.

A structured payment is a contract that is usually known as a periodic payment, which lasts for a fixed amount of time or for the life of the injured party, or may be tailored to suit individual needs. For example, it can be arranged to give lump sums to the injured party for replacement of personal equipment such as wheelchairs or special equipment directly related to the injury, as well as periodical payments.

Structured settlement payments were originally introduced in Canada in 1979, and since then have almost completely replaced lump sum payments. This type of payment structure has become popular in many other countries over the world including America, Australia and some European countries.

Structured settlements reduce the costs of providing compensation as well as make sure that the injured party is looked after for the amount of time needed to recover from their injuries, the terms and conditions of structured settlements vary from country to country.

Benefits Of Structured Settlements

One of the most important advantages of a structured settlement is that the injured party cannot spend the money prematurely as easily as with a lump payment. These types of payments are especially important for those who, through their injuries are likely to need the settlement money for their lifetime.

Studies made prior to the introduction of structured settlements indicated that after 2 months of a settlement, whether it was from insurance, inheritances or even winning the lottery, 25% of the recipients had nothing left of their lump payment sum. By the end of the first year 50% had nothing left, and after 5 years 90% of the people had nothing left.

Another benefit of Structured settlements is they are tax-free. Congress amended the federal tax code to provide 100% exemption from federal and state income taxes to encourage people to use structured settlements rather than lump payment settlements in the late 1980s.

Structured settlements are also very flexible and can be set up to suit each individual’s needs. The simplest form of this is an equal payment every month for the number of years a person is expecting to be incapacitated.

Although payments don’t necessary need to be equal each month, and can allow for extra expenses needed for the individual, this is what makes structured settlements suitable for a wide variety of injuries. An attorney, or structured settlement broker usually discusses the injured persons needs and gives details and advice on arranging a payment schedule that will benefit the injured person.

How Payments Are Determined

In most cases the injured person and the responsible party will discuss medical care and basic living costs and calculate them to come to an agreement. Often a settlement broker, or an attorney may be used to help provide calculations on the long-term costs and needs.

Once the structured settlement has been agreed on, the party at fault will then fund payments that reflect the agreed amount. It is advisable to discuss any structured settlement with an attorney or a professional settlement broker as settlements such as this involve very complex calculations.

Who Needs A Structured Settlement

Minors or those who are considered to be unable to handle large amounts of money are ideal candidates for a structured settlement.

Other people who can benefit from structured settlements are those involved in compensation cases or severe injury cases, where the injured person can no longer work and has a family to support. Wrongful death cases where the victim has a spouse and children that needs to be supported. It is estimated that the more severe an injury is the more likely that a structured settlement will be used.

Selling Your Structured Settlement

Although structured settlements were designed to pay a set amount of money over time. It is possible however to cash in on them using a financial institution that deals in buying the settlement amount of money that is still owed to a victim. Then allowing part, or the entire amount of money still owed to a victim to be taken out in a lump sum.

The financial institution will often discuss the victim’s circumstances, as well as their needs and the amount of money they receive in installments. It is recommended that those who have structured settlements only use the amount of money they need in a lump sum payment to reach their needs, rather than taking the whole amount owing to them.

In recent years, structured settlements have become increasingly popular, but what are they? What are the pros and cons of such agreement? What are the alternatives?

A structured settlement is money awarded by the courts as a result of a lawsuit. The payments are paid over a fixed period of time or over the recipient’s lifetime. Some settlements may include a portion of (more…)