Structured Settlements

By:    Updated: March 1,2017

Structured settlements are an alternative to the lump sum settlement made to the claimant. These settlements are financial or insurance agreements for the plaintiff to resolve a personal injury. When plaintiffs win lawsuits that reward them with a large amount of money, their defendants have to pay the entire amount. If it is not possible do this in a single payment, the defendant can opt for structured settlements with the consent of the winner. When structured settlements are created, the defendant purchases an annuity through companies that offer these services. This method of payment offers several financial advantages to the payee.

How Structured Settlement Works

When you win a lawsuit and you agree to receive your reward in a structured settlement, then you will receive regular payments over a period of years. The amount of these payments and the length of time you receive payments depends on the individual settlement and situation. These payments can be paid as equal installment, installments of varying amount, or lump sums. It can be yearly or periodic lump sums for every few years. The structure is really between you, your attorney, and the defendant's attorney.


A structured settlement can provide you with regular payments for the rest of your life or for many years, depending on how you set it up. Another major benefit of this settlement is tax avoidance. This will minimize the tax debt you owe, compared to the tax debt you would owe if you received the money as a single settlement. You can also receive the payments for a number of years. While it might sound good to get a huge amount of money at one time, you should consider your personal financial habits and philosophies before disregarding options that structured settlements offer. If you tend to spend lavishly when you get paid and then struggle to pay your bills, structured settlements can spread out your payments; thus, prevent you from being in the state of no money to meet future necessities. Structured settlements serve as a sort of insurance because you know, irrespective of what you spend today, you have another payment coming right on schedule.


All costs associating with a structured settlement are paid by the defendant. It's entirely up to the claimant to decide how he or she wants to be paid by the defendant. There is no added cost for opting for the structured settlement as opposed to the lump sum settlement.


It's up to the claimant to decide when he or she will be paid. If the defendant is unable to give you a lump sum, it also may be possible to sell structured settlements for a lump sum if you wish to do so. This requires careful research of the laws that govern this transaction.


When structured settlements are agreed upon, they are purchased through certain companies that offer annuities. The defendant purchases the annuity for a price that the company sets, and then that company makes payments on structured settlements to the plaintiffs according to the agreement. Some companies that offer annuities include American International Group, and Farmers Insurance Group. Some people agree to structured settlements but later want or need the entire settlement at one time as opposed to receiving payments. The settlement cannot be changed once it is agreed upon, but, as mentioned earlier, some settlements allow you to sell it to someone else for a lump sum that is typically a little less amount than you would receive from these payments.

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