Instead of receiving the compensation in a lump sum payment, the payments are spread out over a period of time that is decided upon beforehand.

In cases involving personal injury, a structured settlement is especially helpful. If the plaintiff is temporarily or permanently unable to work, a structured settlement provides them with a sense of financial security. The claimant will have a steady source of income which makes financial planning much easier.

Another good reason for choosing a structured settlement is the tax benefits they have to offer. When payment is received through a structured settlement fixed annuity, the claimant’s payments are not subject to federal income tax.

The earnings accrued from the payments are also exempt from federal income taxes. In most instances, the claimant can earn more money this way than through taxable investments.

While a structured settlement need only have one component, that which provides for the payout over the life of the structured settlement, most structured settlements have several different components, differing in the amount, the schedule you receive payment on, and the life of payout.

Understanding the components and how they work are very important in terms of maximizing your payout.

All structured settlements include one component that provides for a certain amount of money over the course of the payout. The payout terms are highly variable. Some structured settlements pay for the life of the plaintiff while other structured settlements only pay for a set number of years.

This is usually dependent upon the extent of the injury and what the judge and/or jury, depending on your jurisdiction, feel that the plaintiff is entitled to, based on the extent of the injury suffered.

Similarly, sometimes payments increase with inflation while at other times they are fixed for the life of the payout. Occasionally, a structured settlement will be arranged with fixed payments every month and a balloon payment every year or two.

Another common component of a structured settlement provides for upfront cash for the plaintiff. Plaintiffs often have lots of bills, legal and personal, upon the conclusion of their lawsuit. Indeed, many plaintiffs are on the verge of financial ruin, facing evictions and collection agencies, among other things, by the time a case is concluded.

Courts recognize this and often stipulate that upfront cash be provided to the plaintiff upon completion of the trial. The upfront cash component of the settlement is designed to allow the plaintiff to pay off any debts incurred as a result of the injury and lawsuit as quickly as possible.

If there is any money left over, the plaintiff is allowed to spend or invest that money as he/she sees fit. However, it should be noted that while money directly received from structured settlements is not taxable, any money made from investing any component of the structured settlement, including interest, is subject to local, state, and federal taxes.

In addition to the first component, which pays a fixed amount over the course of the payout, there can be another fixed payment that may last for a certain number of years in addition to the primary component of the structured settlement.

For example, say that a person was permanently injured on the job and could no longer work. Their structured settlement might contain the basic component, consisting of a certain amount of money payable every month, as well as the upfront cash.

Another payout might include more money until that person reaches retirement age and those payments would end when the plaintiff becomes eligible for social security and Medicare.

Just as an example, a worker permanently disabled might get $1000 per month, to increase with inflation, for the remainder of her life.

She might get an upfront payment of $30,000 to settle her debts upon winning the suit, and, in addition, she might get an extra $300 per month until she reaches eligibility for social security and Medicare.

Q: What is a Structured Settlement?

A: A structured settlement is a periodic payment plan that is agreed upon between a plaintiff and defendant. It is used in many cases where the plaintiff is awarded a large sum of money. Instead of receiving the compensation in a lump sum payment, the payments are spread out over a period of time that is decided upon beforehand.

In cases involving personal injury, a structured settlement is especially helpful. If the plaintiff is temporarily or permanently unable to work, a structured settlement provides them with a sense of financial security. The claimant will have a steady source of income which makes financial planning much easier. Another good reason for choosing a structured settlement is the tax benefits they have to offer.

When payment is received through a structured settlement fixed annuity, the claimant’s payments are not subject to federal income tax. The earnings accrued from the payments are also exempt from federal income taxes. In most instances, the claimant can earn more money this way than through taxable investments

Q: How are Structured Settlements Taxed?

A: If you have been injured mentally, physically or otherwise, you generally do not owe any federal or state taxes on any money you receive from a structured settlement. This is the primary reason why people often prefer a structured settlement with payments made over time as opposed to lump sum payments.

While you also pay no taxes on the lump sum payment, you must pay taxes on any money you make from interest made on the lump sum or on profits from investments of the lumps sum. If your money is in a structured settlement, any interest that accrues over the course of your payout schedule is tax free.

Q: Structured Settlements: How long will I receive payments?

A: When agreeing to a structured settlement the funds are generally distributed in two ways. Recipients will typically receive an initial lump sum with the duration available through an annuity plan. The remainder of these monthly or annual payments is generally structured to meet ongoing medical and financial needs commensurate to your personal injury following successful litigation.

There are certain components built into a structured settlement that are best reviewed with a qualified attorney. These features are important to address because they have a bearing on such things as payment methods as well as whether or not the settlement will allow heirs to receive the remainder of compensation in the event of death.

Q: How much money is enough for a structured settlement?

A: A competent attorney will be able to assist you in researching the details of your financial needs following the successful litigation of a personal injury lawsuit. Since most structured settlements rely on a long term annuity payout it is important to have a realistic picture of your financial requirements. Those with the most severe injuries are most likely to be awarded significant structured settlements, while older plaintiffs are likely to see a lesser award.

This disparity is primarily due to a general view of life expectancy allowing younger plaintiffs to receive a larger overall settlement. A financial advisor can also explain risks associated with interest rates tied to your structured settlement annuity. Fluctuating interest rates can affect present and future settlement payments. The answer to, “How much is enough for a structured settlement?” is best answered by taking a realistic look at present and future medical needs and lost wages.

Q: What Is A Structured Order?

A: A structured order is a judgment of settlement that is made by the court. With a structured order, the agreement of the parties, both Plaintiff and Defendant, are not necessary. The structured order is often decided upon by the court when the parties can not come to agree upon a settlement or structured settlement themselves.

This structured order begins by an individual suing for compensation or damage received such as personal injury. When the injured party and the Defendant can not agree to the terms of a settlement, the court then may decide on a structured order. This structured order is very much like the structured settlement, in that the compensation paid to the party will be paid by periodic payments that are tax-free.

Q: When Can I Get A Structured Settlement?

A: When opting for a structured settlement, the important thing to remember is that you may only take do this before the personal injury claim has been settled. What this means is that if you settle your personal injury claim, you can not change your mind and opt for a structured settlement.

There may be other conditions you and your case will have to meet, as well, such as the claim itself is from a personal injury and not a death and that your settlement is in writing. Each country or state may have other conditions that must be met before you can get a structured settlement.

Q: Who Should Consider a Structured Settlement?

A: A structured settlement is beneficial in many cases including those involving personal injury, such as medical malpractice or auto accident injuries, workers compensation cases, and in the instance of attorney fees. For personal injury and workers compensation cases, a structured settlement is advantageous for many reasons. First it provides a stable source of income for those unable to work.

Unlike plaintiffs who choose a lump sum payment, a structured settlement payment plan does not require the recipient to be especially skilled in financial planning or investing. Secondly, it may be necessary in cases involving wrongful death. If the surviving spouse is not employed, a structured settlement will provide them with a steady flow of income similar to receiving a paycheck.

Lastly by receiving periodic payments, plaintiffs are guaranteed income in the future that may be needed for major expenses such as purchasing a home or paying for a college education. In regards to attorney fees, a plaintiff has the option of using a structured settlement plan for those fees only. This is a common choice for cases that involve wrongful death or personal injury claims. A structured settlement for attorney fees can also benefit the designated attorney by allowing them to reduce their tax payments since the fees received will be spread out over a long period of time.

Q: Who should I talk to about structured settlements?

A: When personal injury litigation is successfully completed you may find that the actual structured settlement is best reviewed by both an attorney along with a competent financial advisor. The attorney will be able to assess all legal issues and will seek to protect legal rights while a financial advisor will be able to provide perspective on what may be in your best financial interest.

A financial advisor will be able to explain the finer details of a chosen structured settlement plan. It is important to address all issues related to your structured settlement prior to finalizing the compensation agreement. Ultimately you have the final say on how your structured settlement will look, but by taking advantage of the expertise of those who have managed other similar cases you may discover ways to provide a more comprehensive approach to managing your settlement.

Q: What are the benefits of a structured settlement?

A: The biggest advantage of a structured settlement is that it removes the risk of potentially mismanaging one large lump sum of money. Another benefit is that it provides the claimant with a regular income stream, making budgeting much more easier, similar to pocket money or a shopping allowance. This can be especially helpful for those who have had to take time off work to recover of those who are nolonger able to work due to their injury. Furthermore all structured settlement payments are exempt from federal income tax.

The payments can be made on monthly or yearly basis, or can even be spread over a recipient’s lifetime. More often than not such settlements include an immediate cash payment and are set up as an annuity usually orchestrated by reliable insurance companies.

However, a variety of compelling reasons like medical expenses or financial emergency may force recipients to sell their structured settlement payments because they need immediate cash and are in no position to wait out the terms of their settlement.

And there will be no dearth of buyers if someone is really willing to sell it. Under a protective law signed in January, 2002 by President George W. Bush, a structured settlement deal now requires legal sanction to ensure that the sale of your payments are truly in your best interest.

The deal calls for execution of a Transfer and Assignment Agreement with the seller in which the price and other terms of the contract are fully disclosed. The sale is announced to all interested parties which must be approved by a judge.

Under normal circumstances, it takes about 90 days to complete the entire process. When you want to sell your structured settlement, the purchasing companies will assess your immediate needs and decide whether to buy the whole or a portion of a future payment stream.

They will offer you a number of options to choose from, such as lump sum payoff, partial lump sum payout or restructured payment stream. If you own an annuity policy and are receiving payments on a periodic basis, you are likely to receive immediate cash if you are in urgent need of money.

Buyers will prefer a variable annuity as it helps them beat inflation or opt for a fixed annuity in which the rate of return and income stream is predictable. If you win a lottery and sell it, the buying companies will offer you a lump sum amount in lieu of your long-term payment streams.

As selling your structured settlement is a major financial decision in your life, you must carefully assess all your options before making a final decision.

Depending on the nature, structured settlements can be spread over a person’s lifetime, or just over a few years. Most of such settlements include an immediate cash payment and are set up as an annuity generally orchestrated by insurance companies.

However, despite the attractive initial payment plan, a financial emergency, unforeseen medical expenses, or other compelling reasons can force many people to rethink the need for future payments.

They may decide to sell their structured settlements for some such reasons. Irrespective of the reason, the fact is that a structured settlement payment stream is a personal financial asset that can be bought or sold today.

A number of companies these days purchase a structured settlement if one is willing to sell it. A structured settlement deal requires execution of a Transfer and Assignment Agreement with the seller following full disclosure of the price and other terms of the contract.

The sale is announced to all interested parties which must be cleared by a judge. As the immediate financial needs vary from customer to customer, the buying companies evaluate each requirement and accordingly buy the whole or a portion of a future payment stream.

Assessing the specific requirements of sellers, these companies offer various purchase options like lump sum payoff, partial lump sum payout and restructured payment stream to choose from.

For those who have bought an annuity policy and are receiving payments on a periodic basis, some buying companies are ready to provide immediate cash if they are in immediate need of money.

At present, an annuity can grow through compound interest and the annuitant does not have to pay taxes till the funds he receives are treated as income. Normally, investors prefer a variable annuity as it helps them stay ahead of inflation or opt for a fixed annuity in which the rates of return and income stream are predictable.

The purchasing companies offer lottery winners a lump sum amount in lieu of their long-term payment streams. This scheme provides those fortune-blessed people a chance to better utilize their manna from heaven and equips them well for the future. The companies that purchase a structured settlement actually make a profit and use the money to make investments in suitable fields.

What Does The Structured Settlement Broker Do?

The Structured settlement broker will buy the original contract with the courts approval and pay the seller with a large cash sum. The broker can help a person to get the best deal from the settlement award, but be careful when choosing a broker as some are less than ethical and do not have the expertise in getting you the best deal.

The qualified broker will know many different options that are available for you of which may include temporary annuities, designated annuities, lump sum payoffs and contingent awards.

How to choose a broker

Obviously those brokers who have been in business a long time will have proven records that you can check and they will be more than willing to show you references and past cases they have been successful in.

The structured settlement broker with excellent business credentials will almost certainly be listed in the better business bureau and this is a good place to start when looking for a broker.

What to Watch Out For

There are certain points to be aware of when taking on a broker Don’t sell to the highest bidder. While this may in your favour sometimes brokers will make a high bid just to get you under contract.

Quite often once you have taken on there service they will then make excuses and start reducing the original offer made. Check with the better business bureau to see if there have been any complaints, if there has then stay well clear.

Don’t sign anything until you are sure the broker is reputable.

Don’t believe them if they promise you’ll have your money in just a few weeks, the amount of time taken to close the deal is not governed by the broker and this is a false statement on there behalf.

Don’t give in to your emotions or be blinded by your needs, the thought of having a large sum of money to spend as you like can be an exciting prospect but one which can sometimes blind you. Even though you might be exited or perhaps even in desperate need for the money, stop and think before settling because some brokers could take advantage of that fact.

Don’t be misled by the broker into thinking you have to sell the whole settlement, it may be in your best interest to hang onto some of the settlement and sell it at a later date. The well informed and ethical broker will know all these points and will take you through all of the options they think will be of the most benefit to you both now and in the future.

Never be afraid to ask questions or ask for credentials as the honest broker will have nothing to hide.

Structured Settlement Calculator

Annuitant

The term used to describe the annuity contract holder, i.e., the person who buys the annuity.

Annuity

A contract between a client and an insurance company where the client receives periodical settlement payments for a specified length of time.

Annuity with compounding benefits

An annuity where a fixed percentage of increase is added to each year of payment.

Beneficiary

A person or persons who “benefit” by receiving the payments of a policy holder who has died. This is also referred to as a “contingent payee.”

Benefit

Money paid to a policyholder by his or her insurance company.

Claim

A claim for a payment or payments from an insurance company by a policyholder.

Claimant

The person requesting for a payment or payments as a policyholder.

Contingent payee

A person or persons who “benefit” by receiving the payments of a policy holder who has died. This is also referred to as a “beneficiary.”

Defendant

A person or company defending legal action from any other person or company.

Deferred annuity

An annuity where payments are deferred until a predetermined point in the future.

Employment claim

A claim against an employer for wrongful dismissal, sexual harassment, racial prejudice or other such complaints.

Fixed annuity

A tax deferred annuity fixed at a rate of return during the term of the contract, usually until the annuitant dies.

Flexible premium annuity

A tax deferred annuity that allows for contributions at any time.

General liability

An insurance claim for damages or injuries resulting from patronage of a private company.

Guaranteed benefit

A structured settlement that guarantees the payments of money regardless of whether the claimant is living or dead. This is sometimes referred as a “lifetime annuity.”

Immediate Annuity

An annuity that starts paying out immediately, usually within one month of purchase.

Life only annuity

A structured settlement designed to pay-out only in the duration of a claimants life. Payments will cease if the claimant dies.

Lump sum

A one-off single payment in one lump sum.

Medical malpractice

The term used to describe improper medical treatment where the patient receives insufficient treatment to the detriment of the patient’s health, well being or even resulting in death.

Medical trust

An account operating as a trust which covers a claimant’s medical expenses.

Non-qualified Annuity

An annuity that is first subject to taxation.

Normal life expectancy

The age of which a person may be expected to live, based on life insurance actuarial tables.

Personal injury claim

A claim made by a person who has suffered personal harm or injury to the body or mind, including accidental injury or sickness.

Plaintiff

A person or company who takes legal action against any other person or company.

Premium

The total cost of an annuity contract.

Qualified annuity

An annuity that is not subject to taxation.

Quote

The set cost of an insurance policy determined by an insurance company.

Settlement agreement

A stage of settlement where all involved parties are in agreement with one another and satisfied with the outcome of the settlement.

Straight/straight life annuity

A tax deferred annuity fixed at a rate of return during the term of the contract, usually until the annuitant dies.

Structured settlement

A form of settlement that pays benefits in periodic installments instead of in one lump sum or a one-off payment.

Tax sheltered annuity

A tax-exempt annuity usually only offered to employees of tax-exempt organizations such as hospitals, schools and some charities for example.

Term certain annuity

An annuity where the term of the contract duration is specified and certain, i.e. for 10 years, or 15 years for example.

Variable annuity

An annuity contract that gives the client complete control over the annuity meaning he or she can spend the money on any number of different investments of his or her choice. This also means they are liable for all losses and not the insurance company.

Workers compensation

Payments paid to an employee or the employee’s beneficiary from the employer as a result of injury or death caused in the work place that is the fault of the employer.

Legislation states that most people between the ages of 50 and 75 must buy an annuity along with there personal pension. The amount of income you receive each year for your lump sum is based on the annuity rate, the amount you in your pension fund, your health, sex and age when purchasing the annuity.

The income will also take into account whether it’s just for you or if there is a partner involved. Also the older you are the higher the income will be for an older person will have fewer years than a younger one to live.

Usually the income is higher for a man than it is for the woman; this is based on the fact that men generally do not live as long as women. You usually have the option of when your income is paid, this can be once a month, every three months, 6 months or yearly.

You also have option of choosing if you want your income paying in arrears or in advance, frequently you will receive higher payment if you to be paid in arrears.

The Different Types of Annuities

There are different types of Annuities available these are fixed vs. variable and deferred vs. immediate. The fixed annuity will earn you a fixed rate of interest over a specific period of time, such as one, three or a five year period.

Once this period of time has been reached then a new interest rate will calculated. The variable annuity will offer a broader range of funding or investment options, some of which may include stocks and bonds.

The income you receive from this type of annuity can go up and down and the return you receive is not guaranteed. Some variable annuities though may also offer you a fixed account option that is similar to a fixed annuity in that it will guarantee both your principal and interest.

This option will give you the chance to divide your money between a low risk fixed option and the higher one of stocks, essentially all under one roof.

The deferred annuity can be started with either a single lump sum or flexible payments, and as the name suggests there is a delay in receiving your money. If your main purpose is saving for retirement, you don’t intend touching your money until you are at least 60 years old or you want to invest a lump sum of money that will earn deferred interest for a number of years then a deferred annuity may suit you.

The Immediate annuity may suit you better if you are looking to invest a single lump sum, you will also receive your money earlier. It might also be better suited if you are retired now or are very near to retirement age, if you want an immediate return on your investment or if you wish to receive a steady income in monthly payments.

Whatever your personal reason for wanting to sell your annuities, the transference of your structured settlement, and thus the ability to sell your structured settlement, is governed by law. This isn’t just a case of transferring a deed to a car to a new buyer or of transferring your property, a judge actually has to look over the document and approve the sale of your structured settlement.

Because of the entanglements with the judicial system, you can expect the sale of your structured settlement to take 2-3 months. If you expect you will need the cash soon, then you should get started on it immediately. Many companies buy and sell structured settlements, but any who claim that they can have it done in just a few weeks is probably lying.

No company has any control over how quickly the judiciary moves. Your best bet to sell your structured settlement is to go through an established company. They will prepare all the paperwork so that it is to the court’s liking and they will issue you a check for your structured settlement.

Make sure the company you choose has an excellent customer service record. You can do this by contacting the Better Business Bureau. You should also contact your state attorney’s office to check up on the companies with which you are thinking of doing business.

This could be an incredible sum of money and while most places are legitimate, anything that deals in large amounts of money can attract shysters and scam artists. Even if everything looks good, you may want to consider taking everything to a lawyer to independently ensure that you are not being taken advantage of.

You should also shop around; you may find a better deal on fees at one place over another. It should be noted that often times, structured settlements have several different payment components. You do not have to sell all the components if you don’t want to. The components are made up of separate annuities and you can transfer one of them without transferring the others.