What is a Structured Settlement? | Structured settlements are defined How do organized settlements work?
A structured settlement is an arrangement where individuals receive periodic payments over time rather than a lump sum, which is often the result of lawsuits.
These settlements offer financial security, stability and tax benefits. While structured settlements are facilitated by annuities, they are tailored specifically to meet the recipient’s needs.
What is a Structured Settlement? | Structural settlements are defined.
A structured settlement is a type of court settlement that is paid annually rather than as a one-time, lump-sum payment. A structured settlement generally provides tax benefits to the receiving party while also providing some savings to the paying party.
Definition of organized settlement next to graphic of money bag and gavel
spread out
Structured settlements are relatively simple. Many civil lawsuits result in one person or company paying another to right a wrong. Those found at fault may agree to settle on their own, or be forced to pay if they lose a court case.
Structured settlements are usually voluntary arrangements between the defendant and the injured party—both parties usually have a say in whether to set up a structured settlement or opt for a lump sum payment.
If the amount is small enough, the wronged party may choose to receive a lump sum. However, for larger amounts, a structured settlement annuity is usually arranged. Various factors often influence this decision, including the recipient’s financial needs and preferences, future financial planning and tax considerations, and the overall negotiation process between the parties involved.
When an orderly settlement is ordered, the party at fault puts the money towards an annuity – a financial product issued by an insurance company that guarantees regular payments over time.
The agreement also details the series of payments that the awarded party will receive as compensation for the damages suffered by them. Spreading the money over a longer period provides a better guarantee of financial security because the recipient cannot quickly spend the series of payments.
How do organized settlements work?
Structural settlements are the result of legal settlements that are ultimately paid by insurance companies. But there are four parties involved in the work of structured settlement.
Parties involved in a structured settlement:
Claimant
The injured party. A claimant files a lawsuit against the party who claims to have been injured.
Defendant
The party against whom the claimant sues. If the defendant loses the case in court—or settles before it goes to court—they can set up a structured settlement to pay the settlement.
Assignment Company
The defendant—or their insurance company—enters into a qualified assignment to transfer their obligations to make periodic settlement payments to the plaintiff. The liability is transferred to an assignment company that accepts the liability.
Insurance company
Assignment companies usually work with life insurance companies. The assignment company purchases a structured settlement annuity from the life insurance company and issues payments to the claimant for the duration of the annuity contract.
