How does a structured settlement work?
After successfully winning a case against the defendant, the plaintiff receives an orderly settlement. In many cases, the defendant buys an annuity from an insurance company, which is then responsible for the series of payments. Instead of getting a lump sum, you will receive fixed payments at a fixed time.Structured settlements are the result of legal settlements that are ultimately paid by insurance companies. But there are four parties involved in structured settlement work.
Structured settlement annuities are ideally suited for many types of cases. Although these fixed payments offer several benefits, it is important to understand both the benefits and the risks when making any financial investment decision.
When a plaintiff receives a lump sum settlement, they can spend it very quickly. Congress, in establishing mechanisms for systematic settlements, decided that injured parties should be encouraged to receive payments over time to counterbalance this. This will ensure that they have a steady stream of income to cover their living expenses and medical needs.
Structured Settlement Payment Options
A structured settlement annuity is usually offered when a person is awarded a large sum of money. Small settlement awards are usually paid in one payment.
Advantages of structured settlements
- A structured settlement can provide greater financial stability, especially in cases of long-term injury or disability.
- Structured settlement payments are tax-free.
- Structured Settlement Annuity accounts earn interest.
- The settlement helps replace any lost income experienced by the plaintiff.
- The payment can be transferred to the survivor after the death of the beneficiary.
- Payment does not fluctuate with market conditions.
- Less risk of making bad financial choices than receiving a large sum of money.
How do structured settlements work?
Structural settlements are the result of legal settlements that are ultimately pays by insurance companies. But there are four parties involves in structured settlement work.
PARTIES INVOLVED IN A STRUCTURED SETTLEMENT:
Claimant The injured party. A claimant files a lawsuit against the party they claim has been injured.
Defendant The party against whom the claimant sues. If the defendant loses the case in court—or settles before it goes to court—they can set up a structured settlement to pay the settlement.
Assignment Company The defendant—or their insurance company—enters into a qualified assignment to transfer their obligations to make periodic settlement payments to the claimant. The liability is transfers to an assignment company that accepts the liability.
Insurance company Assignment companies usually work with life insurance companies. The assignment company purchases a structured settlement annuity from the life insurance company and issues payments to the claimant for the duration of the annual contract.
