Structured Settlements Explained
Legal language aside, structured settlements are simple. In a civil case, someone is either forced or agrees to pay someone else money to right a wrong. Instead just writing a check, the at-fault person outs the money towards an annuity from a life insurance company. In that annuity contract are details on the series payments the person who was wronged will receive from the life insurance company.
By structuring the money over a longer period of time, a structured settlement offers a better future guarantee of money than a single payout which can be spent quickly.
The process is around 40 years old. In the 1970s, the courts ruled that a medication called Thalidomide given to pregnant women was responsible for serious, lifelong birth defects, structured settlements emerged as a way to make sure the money awarded to the child lasted a lifetime.
Still, today, most settlements from civil cases are lump sums. There are two key differences between lump sum settlements and structured settlements: long term security and taxes. By structuring the money over a longer period of time, a structured settlement offers a better future guarantee of money than a single payout which can be spent quickly. Money you receive from a personal injury is almost always tax-free when you receive it. However, once the money is yours, you’re liable for taxes and dividends from the lump sum.