Structured Settlements

What is a Structured Settlement?

A structured settlement is an alternative method of compensation in personal injury cases. Instead of proceeding with litigation or accepting an all-cash settlement in one lump sum, clients who choose a structured settlement receive a cash portion of the settlement now and periodic payments made through a Structured Settlement Annuity.

Why is This Better Than a Cash Settlement?

It’s guaranteed. Payments are guaranteed for whatever length of time you choose. If you want to receive payments for your entire lifetime, you won’t ever outlive your settlement funds.

What are the advantages of a Structured Settlement?

Advantages to claimants

There are compelling reasons for claimants to agree to a structured arrangement of their settlement dollars. Structured settlements can:

  • Eliminate the risk of mismanagement. According to one recent study, approximately 30% of all accident victims completely dissipate their settlements within two months of receiving them – and 90% spend all the money within five years.
  • Provide tax advantages. Fixed annuity payments from a qualified structured settlement are tax-free to the annuitant under current IRS rules.
  • Provide a steady, low-risk source of money and eliminate the expense and worry of managing large sums.
  • Offer more money over time than a lump sum in many cases. Fixed annuity payments can continue for life – no matter how long the claimant lives.
  • Offer a convenient way – through regular payments — to meet the individual claimant’s needs and special circumstances.
  • Maximize settlement benefits. In cases where the defendant has low insurance policy limits, a structured settlement can often provide a more generous overall settlement.

Advantages for minors

For information on the benefits of Structured Settlements for minors, click here.

Tax rulings support structured settlements

Structured settlements are governed by the Internal Revenue Code (IRC). Under section 104(a) (2) of the IRC, compensation received because of a personal physical injury or sickness is not included in gross income and is therefore exempt from income tax. This is true whether the money is received as a lump sum or as periodic payments.

By entering into a structured settlement using a fixed annuity, the claimant gains a tax advantage. And because benefits to be paid under a fixed annuity are calculated in advance, claimants have the security of knowing that their income stream will be predictable and dependable. No tax exposure means more funds for the claimant.

An effective, established solution

Since the inception of structured settlements in 1979, thousands of claimants have found them to be a sensible, effective method of managing their damage awards. These payment arrangements – which have convincingly established their value in courtrooms, legal offices and insurance offices throughout the country – should be considered in most cases involving bodily injury. They are particularly appropriate in cases involving:

  • Temporary or permanent disability;
  • Claimants who have limited investment or financial management skills;
  • Guardianship of minors or persons with diminished mental capacity;
  • Wrongful death particularly when the surviving spouse and/or children need
    monthly or annual income;
  • Severe injury, especially those that result in shortened life expectancy; and
  • Cases where future needs can be determined today.

Structured settlements can also be useful when dealing with claimants who have special needs.

  • Significant, ongoing medical expenses;
  • Rehabilitation or permanent care facility expenses;
  • College tuition, retirement income, the down payment on a home or a mortgage payment, and;
  • Replacement of monthly income, annual income or supplemental income.
  • Workers compensation claims; and
  • Personal injury, other than bodily injury.

Even cases that involve tax exposure – environmental pollution liability, and property loss claims – can benefit from a structured settlement approach.

It’s tax-free.

Structured Settlement funds are exempt from federal and state income taxes. You can avoid the tax burden that comes with investment earnings on a cash settlement. Over time, a structured settlement ensures significant tax savings and maximizes the value of your proceeds.

There’s no market risk.

You eliminate the exposure to market risks and the potential for investment failures. The annuity provider absorbs any risk of market and interest rate fluctuations, and the dollar amount of your payments is guaranteed, year after year.

You have money when you need it most.

Annuity payments may be designed and timed to meet your needs now and decades from now. You’re assured that funds will be there specifically for medical and educational expenses, for basic living requirements, and for specialized healthcare needs that may arise in the future as a result of your injury.