Comprehensive Guide to Structured Settlement Agreements

Understanding Structured Settlement Agreements in Depth

A structured settlement is a financial arrangement or insurance deal negotiated after a legal case, where the injured party receives compensation through periodic payments instead of a lump sum. Both the plaintiff and defendant must agree on the terms before proceeding. Widely endorsed by disability advocacy groups in the United States, these settlements often help resolve cases without court intervention, especially in severe injury, workplace injury, or wrongful death claims.

Flexible by design, structured settlement terms—including payout duration, frequency (monthly, quarterly, or yearly), and amount—are customizable. Payments can be scheduled to end with a lump sum, or continue to heirs upon the recipient's death. Typically, an insurer funds an annuity that provides consistent payments over time.

While benefits include tax advantages and guaranteed income, there are considerations. Lump sums are preferable for immediate needs like surgery or property buying. Structured payments support long-term planning, often resulting in lower insurance costs. However, some parts of the settlement—like punitive damages or certain legal fees—may be taxed. Market fluctuations can also impact future income amounts.

It’s important to note that claimants do not own the annuity policy directly. Instead, payments are made via an assignment company, which purchases the annuity from the insurer and distributes funds accordingly. This setup affects tax benefits and ownership rights.

Structured settlements offer steady income, providing predictability and financial security. If circumstances change, claimants can sell part or all of their future payments in a process called factoring. This flexibility allows access to cash to cover urgent expenses such as education, debts, or home purchases, without losing all future income.