Your Guide to Structured Settlements

Structured Settlement Company

Do you have a structured settlement and need cash now? Well, there are a number of companies that are more than willing to help get that cash as quickly as possible.

Structured settlement companies basically purchase your settlement and pay tax-free payments or lump sums to a civil litigant over time. The person is usually someone who has been injured in an accident or due to negligence.

While structured settlements are pretty simple, there are pros and cons.

What is the structured settlement agreement process?

  • Once the plaintiff gets sued for compensation due to neglect or an injury, the defendant can agree to a structured settlement in lieu of a trial. There are times when a defendant may have to do a settlement if they lose in court.
  • Both parties will work with an assignee to determine the terms of the agreement. This will include the length of the payments, the amount, and whether or not they will increase or decrease at some point.
  • The annuity will be purchased from a life insurance company. The terms are pretty much etched in stone and cannot be altered. In some cases, a lump sum may be set aside for fees.
  • The insurance company will make the payments per the terms of the contract. The money does accrue interest over time

There are pros and cons of the structured settlement agreement. People should thoroughly weigh this to determine what best fits their personal situation. Talk it over with a financial advisor.

Structured settlement pros:

  • For tax purposes, structured settlements cannot be counted as income even though it earns interest.
  • If the recipient dies prematurely, the beneficiary can receive all future payments.
  • The ability to spread out payments guarantees you have more money for the future.
  • Structured settlement funds do not interfere with Disability, SSI, Medicaid, or other forms of federal aid.
  • Financial market fluctuation do not affect structured settlements.
  • Even if the insurance company goes under, the structured settlement payments are still covered by your state.
  • The payments yield more than a lump sum due to accrued interest over time.

Cons of structured settlements:

  • There can be tax penalties. This can include punitive damages or emotional damages, and some attorney fees.
  • Changes to the economy such as inflation or recession can affect the annuity.
  • Annuities are cheaper than lump sums for the defendant.
  • Once the money is gone, it’s gone. You don’t get a second chance.
  • Some of the investments may not do as well as others.
  • If you have an emergency situation, you may not be able to access your funds.
  • Depending on the state, there are different requirements when it comes to disclosing costs. Failure to do research could cost you a lot of money in undisclosed fees. Always find out the terms before you sign on the dotted line.

History of structured settlements in the U.S.

Structured settlements in the U.S. can be traced back to the 1970s. They became more popular in the 1980s after Congress passed the Periodic Payment Settlement Act of 1982. The laws were again tweaked in 1996. Today, structured settlements are a trusted source of income for many people with civil suits. An estimated $10 billion in payouts are issued yearly.

At the end of the day, a structured settlement can provide you with the security you need in the future. This is especially true if you have been in an accident and need extended care. If you think a structured settlement might be for you, first get the advice of an attorney or financial advisor to determine your best options.