Understanding Structured Settlements: How Are They Paid Out?

Structured settlements are a common form of compensation used in personal injury lawsuits.

A structured settlement

is a contract that outlines the start and end dates, payment frequency, distribution amounts, and death benefits of the settlement. It is usually paid out over a period of time, such as monthly or annually. The main difference between a lump sum and structured settlement is that the latter is paid out over an extended period of time.

Structured settlements are tax-free payments that are received in installments. For example, you may receive payments every month for 20 years. Insurance companies may also provide a guaranteed period for the annuity, which can be inherited for the rest of the guaranteed installments. When it comes to financial security and long-term taxation, there are key differences between these two settlement options.

Structured settlements are an alternative method of providing compensation to an injured claimant. If you need more immediate cash than your settlement pays, you may be able to sell your structured settlement payments to a company that specializes in these purchases. When negotiating a final settlement, both parties will discuss and debate the monetary value of the claim. Structured settlements can be designed to increase payments over time, starting low and ending higher.

According to the National Structured Settlements Trading Association, these types of settlements are more likely to be found in cases involving serious personal injury. The money received from a personal injury settlement is generally not taxable, but you do have to pay taxes on the interest and dividends you receive on the settlement money after investing it. All of these factors make structured settlements an attractive option for those looking for financial security.