Understanding Structured Annuity Settlements: What You Need to Know

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Injuries and accidents can be traumatic experiences that can leave a person with physical, emotional, and financial burdens. These burdens, if not properly addressed, can affect a person’s ability to live and function normally. Fortunately, the law allows persons who suffer injuries or death as a result of others’ negligence or intentional actions to seek compensation. However, the compensation process can be lengthy and complex. One of the options or tools available to help injured parties receive compensation is through structured annuities. This article aims to give you a better understanding of structured annuity settlements.

What is a structured annuity settlement?

A structured annuity settlement is a legal agreement in which an insurance company agrees to pay a sum of money to an injured party over a fixed period of time, writes Shawn Plummer, CEO of The Annuity Expert. Rather than receiving a lump sum payment, the injured party receives a series of payments that are spread out over several years. Typically, structured annuity settlements are used in personal injury cases to provide long-term financial support for the injured party. These agreements are often preferred over lump sum payments because they offer a more stable and predictable source of income.

How do structured annuity settlements work?

Structured annuity settlements are a way for injured parties to receive fixed payments over an extended period of time. These payments are determined at the time of the settlement and are based on the plaintiff’s specific needs, explains Catherine J. Byerly for Annuity.org. In order for a structured annuity settlement to take place, the plaintiff must first sue the defendant. Then, both parties work with a qualified assignee who purchases an annuity from a life insurance company. The life insurance company then pays the plaintiff a series of payments over time. This type of settlement is designed to offer financial security to the injured party and can be customized to meet their unique requirements.

Benefits of structured annuity settlements

Structured annuity settlements offer numerous benefits for plaintiffs who receive legal settlements. Instead of receiving a lump sum, structured settlements provide a steady and predictable income that can be tailored to meet the plaintiffs’ needs and circumstances. With the investment and guarantee of the settlement funds, expounds Terry Turner, a senior financial writer for Annuity.org, plaintiffs can avoid the risks of investing or spending the money unwisely. Additionally, structured settlements provide tax advantages and may even reduce legal fees and costs. Overall, structured annuity settlements are a smart choice for those seeking reliable financial security after a legal settlement.

Different types of structured annuity settlements

Structured settlements can come in various forms based on the needs of the recipient, says Turner. One option is the temporary life annuity, which pays out for a set period of time rather than for the recipient’s lifetime. Another is the joint and survivor annuity, which continues to provide payments as long as the recipient or their designated beneficiary lives. For those looking to manage inflation and interest rate changes, percentage increase and step annuities may be more suitable options. Others may opt for deferred lump sum settlements, which schedule large payments for significant milestones in the recipient’s life. Consulting with a financial advisor can help determine the most appropriate type of structured settlement for individual needs.

Factors to consider when choosing a structured annuity settlement

When considering a structured annuity settlement, it’s important to keep in mind several factors. First, be sure to evaluate the amount and frequency of the payments in order to determine if they align with your financial goals. It’s also crucial to understand the tax implications of the payments to avoid any surprises. Take the time to research and assess the financial stability and reputation of the insurance company offering the settlement. Another factor to consider is the flexibility and customization of the payment schedule to ensure it fits your unique needs. Lastly, it’s essential to explore the possibility of selling or transferring the payments in the future. By weighing all of these factors, you can choose a structured annuity settlement that best suits your financial situation.

Risks and drawbacks of structured annuity settlements

Structured annuity settlements have potential risks and drawbacks that should be considered before making a decision. One of the primary risks is that the recipient may outlive the payment period, leaving them without income in the future. This risk should be assessed based on the individual’s circumstances and life expectancy. Additionally, structured settlements are often inflexible and cannot be modified once established. It’s important to carefully evaluate the terms and conditions before finalizing an annuity settlement to ensure it meets the individual’s needs and goals.

How to obtain a structured annuity settlement

Structured annuity settlements can be obtained with the help of a qualified structured settlement broker or financial advisor. These settlements are commonly established during the settlement phase of a personal injury case. It is important for individuals to evaluate their options and select a settlement that meets their needs. A structured settlement allows individuals to receive a stable stream of income over a period of time rather than one lump sum payment. By working with an advisor, individuals can ensure that their settlement is structured in a way that will provide financial security for years to come.


Ultimately, structured annuity settlements can offer stability and peace of mind. Such a settlement allows for the ability to manage a portion of money in a predictable way while diversifying risk over time and providing tax benefits. It is important to weigh the risks associated with any kind of investment, yet these arrangements can be extremely promising when tailored specifically to an individual’s needs. With careful consideration, receiving a structured annuity settlement could give you the opportunity to receive payments for years or even decades after receiving your initial lump sum payment. In addition, having an experienced financial professional available to help you select and understand all aspects of this option can make the process smoother and ensure that you are getting the best outcome for your situation. Whether you choose to obtain an annuity settlement as part of a life insurance policy or from another long-term investment, doing your homework and obtaining professional advice would go far in ensuring that you have made an informed decision regarding setting up such an arrangement.

Frequently Asked Questions

What is a structured settlement annuity?

A structured settlement annuity is a type of settlement option that provides a series of regular payments to individuals who have suffered from personal injury, wrongful death, or workers’ compensation. These payments are tax-free and structured to be paid out over a predetermined period. This approach to compensation ensures that claimants receive a steady income stream that allows them to better plan for their future needs. While structured settlements may not be suitable for everyone, they can provide a reliable source of financial support after a devastating injury or unexpected loss.

What is the difference between an annuity and a structured settlement?

When it comes to receiving regular payments over time, the difference between an annuity and a structured settlement is in the way they are set up. Structured settlements are awarded through a legal court process following negotiations between the plaintiff and defendant, while annuities are financial products that provide guaranteed payments from an insurance company. While both options offer a steady stream of payments, it’s important to understand the unique features of each when considering which may be the better fit for your specific needs.

What is the downside of a structured settlement?

Although structured settlements offer a sense of financial security to individuals who have experienced personal injury, there are also potential downsides to consider. One major downside involves taxation. In some cases, parts of a settlement can be taxed, such as punitive damages, certain attorney’s fees, and emotional damages not associated with physical injury. This means that recipients may not receive the full amount of compensation they anticipated. It’s important for those considering a structured settlement to educate themselves on the potential tax implications and consult with a financial advisor to make the best decision for their unique situation.

What are the benefits of a structured settlement annuity?

Structured settlement annuities offer a range of benefits, but the main advantage is undoubtedly their ability to replace income for individuals who can no longer work. Whether due to injury or disability, these annuities ensure that recipients have a steady stream of income to rely on long-term. Additionally, they can be used to provide for college payments for minors, as well as fund future needs and goals. While some may choose to structure their payouts to include a lump sum for a specific purpose, the peace of mind that comes from having a reliable income source cannot be overstated. Overall, structured settlement annuities are a smart investment for those looking to secure their financial future.

Should I take a lump sum or a structured settlement?

If you’ve recently received a settlement, you may be wondering whether to take a lump sum or a structured settlement. While both options have their benefits, a lump sum allows you to settle immediate debts and expenses. A structured settlement, on the other hand, provides regular payments over time and can help you budget for ongoing expenses. It’s important to consider your financial situation and long-term needs before making a decision. Ultimately, the choice between a lump sum or structured settlement depends on your unique circumstances.

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This article is intended for informational, entertainment or educational purposes only and should not be construed as advice, guidance or counsel. It is provided without warranty of any kind.