Peace of Mind via Predictable Income from Settlements

According to the National Structured Settlements Trade Association (NSSTA), structured settlements have become commonplace in personal injury and worker’s compensation claims across the United States. More than $6.05 billion in annuities were issued by NSSTA life insurance members in 2001 to satisfy physical damage claims. This is a rise of 19% since the year 2000.

To pay off a legal claim, a structured settlement may include lump sum payments plus recurring payments in the future. The money is distributed in annual, semiannual, or quarterly payments, either for a predetermined amount of time or the claimant’s lifetime. The structure may also include quick payments to offset exceptional damages, depending on the needs of the individual involved. Typically, this is done by purchasing an annuity from a life insurance company.

Using a structured settlement, victims of injuries and their families can get a series of payments over time that are distributed however they see fit and are exempt from taxes. They were first used as a replacement for lump-sum payments to damaged parties in the 1970s in Canada and the USA. In addition to large sums of money, such as for lottery winners, a structured settlement can be used for smaller amounts.

The Inner Workings of a Structured Settlement When a case is settled for a substantial amount of money, the defendant, the plaintiff’s attorney, or the plaintiff’s financial advisor may suggest that the settlement be paid out in monthly installments rather than in a single lump sum.

It’s true that a structured settlement is a give-and-take arrangement. Injured parties and/or their legal guardians consult with an attorney and an independent broker to project their medical and financial requirements in the future. This includes the costs of any upcoming procedures, treatments, or medical equipment. Following this, a neutral third party will purchase and hold an annuity in order to provide ongoing financial support for the wounded party. These structured settlement payments are not subject to taxation in any way, unlike dividends from stocks or interest from a bank. The annuity’s growth is also not subject to taxation for the recipient.

There are pros and cons to structural settlements, just like there are to anything else. Tax evasion is one of the main benefits. A plaintiff’s tax burden may be greatly diminished if a structured settlement was properly put up for him or her (as a result of the settlement). A structured settlement can also help a plaintiff have money for future care or needs. Put another way, a plaintiff can be shielded from his own bad decisions by using a structured settlement.

It’s a fact that some people have a tough time handling finances or refusing to “spread the wealth” with loved ones. Paying out a salary in installments can help the money last for a longer period of time.

The preexisting framework has the drawback of causing structural settlements (no pun intended). Periodic payments can feel like a burden to some people. They may, for instance, have their sights set on a pricey thing like a new house yet be unable to afford it. Under the terms of the settlement, they are unable to borrow against future installments, leaving them financially vulnerable until the next scheduled payment arrives. A structured settlement also isn’t the best investment option for everyone. Many common investments offer better long-term returns than the annuities utilized in structured settlements. Accepting a lump-sum settlement and investing the money could be the best option for some people.

Other considerations regarding structured settlements include the following: someone who has been injured and will require special care for a long time may benefit from receiving lump sum payments on a regular basis so that they may afford to maintain their quality of life. A structured settlement may be more appropriate for a minor if it covers expenses like college tuition and fees while the child is still a minor rather than waiting until they are an adult.

Injured parties should exercise caution around structured settlements due to the possibility of exploitation or other risks. They need to think carefully about:

Large Commissions: Annuities are a great way for insurance firms to make money, and they typically come with substantial commissions. Commissions charged during the structuring of a settlement should not consume a large portion of the settlement’s principal.

The defense may exaggerate the benefits of a negotiated structured settlement in some cases. This results in the plaintiff receiving far less compensation than was originally anticipated. To ensure they are getting their money’s worth, plaintiffs can investigate the fees and commissions paid by other insurance providers for comparable settlement packages.

In some cases, a plaintiff’s attorney will recommend a financial planner to put up a structured settlement without revealing that he will receive a referral fee if the client chooses to go with that planner. There have been other instances where a plaintiff’s attorney has arranged a structured settlement for his client without disclosing that the annuities are being acquired from his own insurance company. Any financial services given or advised by an attorney should be evaluated by the client for potential conflicts of interest.

An annuity for a structured settlement should be purchased from many insurance providers. This safeguards the recipient of annuities as part of a settlement package in the event that the issuing corporation declares bankruptcy and defaults on its obligations.

At the moment it is prepared, a structured settlement is tailored to the interests of the plaintiff. But what if the payment plan stops being feasible for the person? You might think about selling your structured settlement if you need a substantial sum of money for a purchase or to meet unexpected obligations. There are plenty of businesses willing to buy all or a portion of your future settlement payments in exchange for a single flat sum. This can improve your financial situation by giving you access to funds you can put to use right away, whether that’s for a housing down payment, school expenses, business investments, or debt consolidation.

Get in touch with an attorney before taking money out of your structured settlement. It may be necessary to seek judicial approval of the buyout in your state. According to the NSSTA, around two-thirds of states impose restrictions on the transfer of structured settlements. Some insurance companies will not allow annuities to be assigned or transferred to third parties, and federal law places limitations on the resale of tax-free structured settlements.

Be sure to shop around when selling your structural settlement to get the best price. Make sure the company you sell your settlement to has a good reputation and track record. Furthermore, remember that if an offer seems too good to be true, it probably is.