What is a structured settlement?
Structured settlements are structured cash payments through an annuity system that is established to compensate injury victims for their losses. Structured settlements are the other alternative payment system to a lump sum cash settlement and are set up to provide payments to you over time. Structured settlements received special legislative treatment by the U.S. Congress in 1982, as a way to make large settlements more agreeable to the payor, who does not need to come up with a large lump sum, yet still provide certain protection to victims.
A structured settlement is an alternative to a conventional lump-sum settlement. It is a method of settling a claim for damages in respect of personal injuries or wrongful death by the payment of periodic sums for designated periods of time. The defendant’s liability for payment of the periodic sums is funded through the purchase of an annuity contract from a life insurance company. A structured settlement is a tax-free financial package paid out over time and tailored to meet the specific needs and preferences of individual plaintiffs. The structure is a type of annuity underwritten by a life insurance company, and guaranteed by the defendant’s casualty insurance company (like ICBC). The annuity payments may be scheduled for any length of time even as long as the plaintiff’s lifetime and may consist of regular installment payments and/or future lump sums. Payments can be in fixed amounts or they can vary. Thus, a structure may provide regular monthly payments for a fixed term, or for
Structured settlements are an innovative method of compensating injury victims. Encouraged by the U.S. Congress since 1982, a structured settlement is a voluntary agreement between the injury victim and the defendant or insurer. Under a structured settlement, an injury victim doesn’t receive compensation for his or her injuries in one lump sum. Rather, in addition to a lump sum immediately upon settlement to cover current obligations or fees, he or she will receive a stream of future tax-free payments tailored to meet medical expenses and basic living needs. A structured settlement may be agreed to privately (for example, in a pre-trial settlement) or it may be required by a court order, which often happens in judgments involving minors.
Structured settlements are an innovative method of compensating injury victims. Encouraged by the U.S. Congress since 1982, a structured settlement is a completely voluntary agreement between the injury victim and the defendant. Under a structured settlement, an injury victim doesn’t receive compensation for his or her injuries in one lump sum. Rather, he will receive a stream of tax-free payments tailored to meet future medical expenses and basic living needs. A structured settlement may be agreed to privately (for example, in a pre-trial settlement) or it may be required by a court order, which often happens in judgments involving minors. A structured settlement is an alternative to a lump sum cash payment litigants receive after a personal injury, wrongful death, or workers’ compensation case has settled. In general, the settlement consists of an up front cash payment to provide for immediate needs and a series of future periodic payments, funded by the litigant’s purchase of an ann
Very simply put, a structured settlement is a financial tool primarily used to settle a personal injury claim. The injured party or plaintiff accepts a long term payment stream in exchange for releasing the defendant from any liability. The vast majority are negotiated out of court. This payment stream is set up as an annuity that is being paid by an insurance company. Section 104(a)(2) of the Internal Revenue Code clarifies that the full amount of the structured settlement payments is tax free to the victim. By contrast, the investment earnings on a lump sum payment are normally fully taxable.
