A structured settlement is a financial or insurance arrangement where someone who has been awarded a settlement or sum of money in order to make recompense for some sort of wrong doing and often you can buy structured settlements as investment opportunities. This can be done as the result of an injury or any other damage to person or property. Structured settlements were started back in the 1970’s as an alternative to making large sum settlement payments. Structured settlements are now a part of the statutory law of several countries including; Australia, Canada, England and the United States. Although there are some similarities between the different countries laws, the general structure is the same. Settlements usually include income tax and spendthrift requirements as well as other named benefits. Settlements are also referred to as ‘periodic payments.’ A settlement that is included into a trial judgment is called a ‘periodic payment judgment.’ If you are looking for someone who wants to buy structured settlements you are looking for a company that will also purchase structured settlements from you in order to then re-sell on the open market in the form of a bond of some kind. When buying structured settlements these companies are essentially buying a security backed investment that pays out monthly. In order for them to make money after buying it from you they have to sell it for more than they bought it. Which means you will not get full value for the annuity. In order to get the best idea on how much you can expect from a settlement, you need to get free quotes from the companies that buy them.
The United States has taken steps to legislate structured settlements on both the state and federal levels. The Internal Revenue Service regulates the taxation laws in its Internal Revenue Code. State laws usually control the periodic payment structures in the judgment. Medicaid and Medicare also affect the dispersing of funds in a structured settlement. Often where Medicaid and Medicare are involved structured settlement payments are incorporated into what are referred to as ‘Medicare Set Aside Arrangements’ or ‘Special Needs Trusts.’
Settlements are endorsed by some of the nations largest disability rights organizations, including the American Association of People with Disabilities and the National Organization on Disability.
Suze Orman is a well know TV financial analyst who wrote in a column that structured settlements ‘provide ongoing income and reduce the risk of blowing a lump sum though poor financial choices.’ In response to a readers question she added that financial security can be improved, ‘if you use the structured payouts wisely.’
Typically a structured settlement is set-up as follows; An injured party (the plaintiff) settles a dispute with the defendant and or its insurance carrier for car accident compensation as an example. Like the lawyer in your town who says he’ll sue the insurance company for you. The defendant agrees that rather than a lawsuit they will pay you a specified amount of money. This specified amount is paid out over time in one of several ways. Basically they find some sort of long term pay structure where they know they will continue to receive payments. Ironically one of the most common assets to fund a structured settlement is a life insurance policy, or series of policies. They are high yield and create a constant income flow, so if you sue your neighbor for running over your cat and you settle for $20,000 – there is a good chance his brother’s life insurance payments are funding your settlement.
