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.

The first part of your structured settlement may be upfront cash. This isn’t an annuity, but it is commonly included by the courts in a structured settlement to give the successful plaintiff a quick influx of cash to pay bills that may have been building up during the court proceedings.

While the first component of a structured settlement isn’t an annuity in any form, the rest of the settlement is in the form of an annuity. For example, part of your structured settlement might include a fixed annuity.

This essentially means that you are guaranteed a fixed amount of income for a period of 1-10 years. The rate of return that you get on the annuity in your structured settlement may fluctuate, but it will never fall below the guaranteed minimum.

If interest rates hold steady or decline, then a fixed annuity is usually a good deal. If the interest rates climb significantly during the term, you may have lost the potential for some good income. The rate will be adjusted every 1-10 years.

The terms for this adjustment will be part of the original structured settlement. In addition to, or instead of, a fixed annuity, you may instead (also) have a variable annuity. In variable annuity, the money from the defendant in your case is placed in an annuity account that resembles a mutual fund account.

Unlike the fixed variable, there is no minimum guarantee for the payments on a variable annuity. IF your structured settlement stipulates a minimum payment, then you likely have a fixed annuity and not a variable annuity.

If the economy is performing well and mutual funds are doing well, you, as the payee, have the potential to make a lot of money with the variable annuity component of your structured settlement.

Unfortunately, there is also a fair amount of risk involved, making it a riskier option if you will be depending upon your structured settlement to pay basic bills and living expenses.

However, if it is being offered as a component in conjunction with a fixed annuity as part of your structured settlement, it may be worth talking over with a financial planner.