Structured Settlement Annuities: What is a Structured Settlement?

What is a Structured Settlement?

A structured settlement is a regular stream of payments granted to the plaintiff in a civil lawsuit. Structured settlements guarantee lifetime income for the injured party. Structured settlements are simple. Many lawsuits result in someone or some company paying money to another to right a wrong. Those responsible for the wrong may agree to the settlement on their own, or they may be forced to pay the money when they lose the case in court.

How Do Structured Settlements Work?

When the defendant and the plaintiff in a lawsuit agree to settle the claim with a structured settlement, both parties negotiate a cash amount payable by the defendant for the damages in exchange for the plaintiff dropping the lawsuit.

Structured Settlements Advantages

1.Structured settlement payments do not count as income for tax purposes, even when the structured settlement earns interest over time.

2.Income from structured settlement payments also does not affect your eligibility for Medicaid, Social Security Disability benefits or other forms of aid.

3.In the event of the recipient’s premature death, the contract’s designated heir can continue to receive any future guaranteed payments, tax-free.

4.Spreading out payments over time can reduce the temptation to make large, extravagant purchases, and it guarantees future income. This is especially helpful if you have a medical condition that will require long-term care.

5.Unlike stocks, bonds and mutual funds, fluctuations in financial markets do not affect structured settlements.

6.A structured settlement annuity contract often yields, in total, more than a lump-sum payout would because of the interest the annuity may earn over time.

Structured Settlements Disadvantages

1.Once the terms of a settlement are finalized, there’s little you can do to alter them if they do not meet your needs. You cannot renegotiate the terms if your financial situation or the overall economy changes.

2.Funds are not immediately accessible in case of an emergency, and you don’t have the opportunity to use the full amount of the settlement for investments that carry higher rates of return.

3.Tapping into your structured settlement benefits without selling payments will cost you money. You will pay surrender charges and IRS penalties if you withdraw funds before age 59½.

4.Some parts of a settlement, such as attorney’s fees and punitive damages, can be taxed.

5.Not all states require insurance companies to disclose their fees for establishing a structured settlement or lump-sum annuity. Without this information, you could lose a significant amount of money from your settlement through administrative fees.

The most common cases for annuity:

1.Personal Injury

A personal injury case is a civil case where someone who’s been harmed files a lawsuit seeking money from the person believed responsible for the harm. Money in the form of a structured settlement helps recipient pay for medical expenses or other costs.

2.Workers’ Compensation

Most people know about workers’ compensation, which pays workers who get injured on the job while they recover. Payments can be used for medical treatment and wage replacement during periods when injured employees are unable to work and other expenses.

3.Medical Malpractice

In some unfortunate cases, doctors can do more harm than good. In this instance, injured patients or the families of deceased patients can sue for medical malpractice.

4.Wrongful Death

A structured settlement is also a common way to compensate family members who claim loved ones were victims of wrongful deaths. Families may be entitled to receive a stream of tax-free payments, to replace income after a loved one’s death.

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