What Is A Structured Settlement?

If you have settled an insurance case for a large sum of money, your attorney or your financial advisor may propose that you receive the money in instalments over a period of time rather than as a single lump sum. This is what is called a ’structured settlement’.

The structured settlement will often be created via the purchase of annuities, which guarantee the future payments. Structured settlement payment agreements may involve the issuing of payments for a certain period of time or for the recipients life time.

The majority of structured settlement agreements are negotiated and established prior to the matter going to court. The settlement amount and the ‘annuity timetable’ are the key elements of the structured settlement agreement. The annuity payments can be equal amounts paid at regular intervals, or they may be paid as periodic lump sums.

A structured settlement offers a degree of protection against the possibility of the recipient spending all the settlement monies at once and being left with nothing to pay for future care or needs. This is especially helpful  if an individual is facing a future in which they can’t retain employment because of their health situation.

One significant advantage of a structured settlement is tax avoidance. With appropriate set-up, a structured settlement may significantly reduce the your tax obligations as a result of the settlement, and may in some cases be tax-free.

Structured settlements have certain restrictions placed upon them that need to be considered.

A structured settlement cannot be used as collateral for a home loan. However, it is possible to claim a structured settlement as income when applying for a home loan. It can be considered income from working, which offers an improved possibility of obtaining a home loan.

Once the parties have agreed on the terms of the structured settlement, the payment timetable and the annuity amounts are not able to be changed.

A structured settlement is paid in increments. However, there is no interest attached to the settlement amount. The settlement amount remains fixed over time. However, it is possible to take the monies from your settlement and invest it into an account that will allow you to draw interest on it and therefore additional income.