What are structured settlements?

Imagine yourself as a plaintiff and you have just settled your lawsuit with a company for a large sum of money. You can choose to cash out the lump sum or receive something called a structured settlement. A structured settlement is an arrangement made to pay the settlement in installments over time. This would usually be accomplished by purchasing an annuity.
Annuities provide regularly scheduled payments as specified under the terms of the structured settlement. The terms would depend on your personal and/or financial situation. You would opt for minimum installments if the reason for your settlement has compromised your life expectancy. If you have special needs that require large periodic expenses such as medical equipment, you may customize the timing of each payment accordingly.

Structured settlements may be a prudent choice if you have poor spending habits. Rather than blowing through your lump sum, you are guaranteed a steady source of income for life. Another advantage is the reduction in taxes needed to be paid that would otherwise be substantial for a lump sum.

Structured settlements have disadvantages as well. Once the terms for the structured settlement are agreed, they cannot be changed in the future. Those who wish to buy a new home, or other expensive items are not allowed to borrow against their future payments arranged by their settlement.

If you decide you need more money immediately, you may opt for a structured settlement factoring transaction. In this process, the owner of the structured settlement can sell all or a portion of his or her future payments for a lump sum albeit a lesser value. This may or may not be possible depending on where you live. Two thirds of the states have enacted laws which restrict the sale of structured settlements. Tax-free structured settlements are subject to federal restrictions on their sale to a third party.

In the event of a particularly large settlement, an important option to consider is the use of multiple insurance companies for annuity purchases. This provides added protection in the event that one of the insurance companies goes bankrupt, thus, defaulting on the settlement payments; you will still be able to receive payments from the other companies.


Larson, Aaron. “The Structured Settlement.” Apr. 2005 <http://www.expertlaw.com/library/personal_injury/structured_settlement.html>

Note: Companies that offer to purchase your structured settlement regularly offer a mere fraction of the value of that settlement. Many victims of structured settlement purchases respond to television advertising and do not understand that they are giving up most of the value of their asset.

Also, any transaction that may have tax consequences should be entered into only after receiving competent tax advice from a licensed tax advisor. Any information regarding taxation of these types of transactions is supplied only for informational purposes and should not be relied on as tax advice.

Charles Park

From an early age, I've always imagined myself in a role that served people in need. My sole satisfaction would be the knowledge that lives were better off thanks to my services. These musings didn't stem from careful deliberation nor obedience to a certain philosophy. Of course, there clearly was naivete within these musings. My service needed to be acknowledged and appreciated and for such service to be worthy of appreciation it needed to be grandiose in scale. Adoring crowds seemed to be the main purpose seemingly as the ultimate goal. As I spent most of my younger years in a small town, Macon, GA, these musings remained musings as I conveniently reasoned that there was a lack of an appreciable crowd. Yet, the unquestioning urge to serve still remained through high school. I became interested in volunteering for the less fortunate. I avidly participated in an organization called Meals on Wheels which home-delivered meals to senior citizens and the invalid. Through this experience, I was exposed to a vast clientele with diverse backgrounds. The clients that struck me most were those burdened both physically and financially by illness. While weaving through the clutter of life-sustaining equipment in a cramped apartment, I still can't forget the smile the bedridden gentleman gave as I delivered his dinner. Safe to say, from then on, I started to understand and appreciate the significance of such seemingly small and trivial acts in people's lives. I have been committed ever since. I'm currently a junior majoring in Chemistry at UNC-Chapel Hill and still strive to serve the less fortunate in small but significant ways. I am currently volunteering as staff in the Orange County Rape Crisis Center. I also volunteer as a companion with the non-profit group A Helping Hand. A Helping Hand is a companionship service for senior citizens and temporarily or permanently disabled citizens. When I don't muse about the various differences I could and should be making in people's lives, I enjoy hiking and playing tennis. I am deeply interested in the current health care reform debate and hope to pursue a career in medicine. I also wish to continue writing about the evolution of health care and its socioeconomic impact on the lives of everyday Americans.

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