A structured settlement is a financial arrangement that provides the plaintiff in a civil lawsuit with a regular flow of tax-free payments. This is intended to provide long-term financial security for the injured party. If the amount of money is small enough, the injured party may have the option of receiving a lump-sum settlement. But what is a structured settlement annuity?A structured settlement is a derivative and negotiated agreement between a person or company that wins a civil case and an insurance company.
It typically includes an upfront lump sum of cash (cash advance) to cover immediate expenses, followed by guaranteed, tax-free, periodic payments customized to meet the needs of the settlement winner. The process of issuing a structured settlement is complicated and results in a simpler and easier solution for someone who wins a case. American General Life Company insurers are market leaders in drafting structured settlement annuities and have been in business for more than 25 years. Some agreements are designed to provide an annual income, with additional amounts allowed to pay for extraordinary expenses, such as college tuition. Some municipalities even have stricter regulations and are generally in areas where there is a larger population at risk with structured settlements. The act of buying and selling structured settlement payment rights is known as a structured settlement factoring transaction.
People who need quick access to funds fixed in a structured settlement turn to buying companies to buy their future payments in exchange for a lump sum. Structured settlements have been a favorite resolution in personal injury and wrongful death cases for the past three decades. In recognition of the value of providing a stable income stream for injury victims, Congress has made structured settlement profits tax-free. New Hampshire, Wisconsin, and the District of Colombia do not have structural agreement protection laws, but homeowners can still sell payments in the state where the insurance company is located. The decision to use a structured settlement must be made before finalizing the settlement agreement. Structured settlement benefits can be delayed until retirement or distributed as an initial lump sum, with smaller subsequent payments over time to pay bills or relieve debt.
Some agreements even include an additional commutation clause that allows the inherited annuity to be paid in a single payment. With a structured settlement, you have much less money in the bank and, therefore, a much lower tax liability.