A structured settlement is the payment of money for a personal/physical injury claim where all or part of the settlement calls for future periodic payments. These periodic payments are funded through an annuity purchased from a major life insurance company or Treasury Bond Trusts. By using highly rated and nationally recognized well-known life insurers or U.S. Treasury Bonds, you can be assured of financial security throughout the period that the payments are due under the proposal.
In the case of lawsuits settled out of court, an increasingly popular alternative to a lump-sum payment is a structured settlement, which is a series of payments to the plaintiff over an agreed-upon time, including lifetime. Typically, the payments are funded through an insurance company annuity or through U.S. Treasury Bonds. Rather than receiving them in one lump sum, the plaintiff will receive a stream of tax-free payments tailored to meet future medical expenses and basic living needs. The settlement may build in an inflation factor so that payments periodically increase in size.
One advantage of structured settlements is they can be designed in a variety of ways. The structured settlement can include a lump-sum payment to pay up front for accumulated medical bills, attorney fees, and costs. It can include lump-sum payments at specific times in the future to pay for college tuition or to fund retirement at 65, with the bulk of the money being paid out in periodic, usually monthly, payments.
One very obvious benefit of a structured settlement is that it eliminates the risk of the recipient, whether a minor, incompetent, or disabled person, squandering the money in a short time.
Another benefit is financial: When Congress amended the federal tax code to encourage structured settlements, it explicitly provided that 100 percent of every structured settlement payment would be exempt from federal taxes.
Guaranteed lifetime payments often stop at the recipients death. If a victim lives a normal life expectancy (which is what the periodic payments are based upon), everything works out. If the recipient dies earlier than expected, the survivors may find themselves with a loss of income they were counting on. The structured settlement may be designed to continue payments to the victim’s beneficiaries for a limited period after death.
Before entering into a structured settlement agreement, consult with one of our qualified, experienced structured settlement brokers.