Structured settlements refer to compensation payments via periodic allowance scheme. Usually, such annuity payments established to reimburse the settlement recipients losses of income or working ability in long term.
Such settlement system is first introduced in Canada in the 1970s. The idea was so brilliant and it quickly grabbed its position in United States and turned popular in Europe countries eventually.
Advantages with structured settlement
Structured settlement in general comes with a few advantages that conventional lump sum cash settlements do not give. A few major plus points include the elimination of dissipation risks involve with lump sum cash settlement and tax exemption on the settlement income.
Picture an 18 years old with a huge pile of money from lump sum settlement, the risks of overspend or being conned is very high. Now imagine the same person gets a fix smaller periodic amount from structured settlement, the risk of being targeted by con man is minimum. So is the chance of wasting the money recklessly.
In United States, favorable tax treatment rules have been extended to the cash received under annuity payment agreement in order to encourage the use of structured settlement system. For instant, money income from structured settlement payment are not included in gross income when filing tax, this means that the payment from structured settlement is non-taxable.
Making a structured settlement claims
The completion of a structured settlement requires contracted agreement from two major parties: the settlement insurer and the settlement claimant. The insurer can be an insurance company, a qualified settlement fund trustee, or even an individual defendant (in rare case).
In the beginning of a claiming process, the insurer have to promises to pay future periodic payments to the claimant with all or a portion of the negotiated personal injury damages in exchange for a release via a contractual agreement.
If the offer is agreed by the claimant, he or she will release the claim in exchange for the promise by the insurer via signing off the contractual agreement. The settlement can consists of one or more future benefit payments to claimant in addition to immediate cash items (for attorney fees, liens).
To finalized, the insurer will need to make an assignment of its obligation to pay future periodic payments to a third-party. The assignee assumes this obligation. The plaintiff agrees to the assignment in the release and agrees to look to the assignee as the obligor for the promised future periodic payments.
The assignee receives funds from the Defendant/Insurer or QSF Trustee and uses these funds to purchase an annuity contract in an amount sufficient to fund the periodic payment obligation it has assumed. The assignee owns the annuity contract and may either make payments directly to the Plaintiff/Claimant or may direct that the annuity issuer make the payments.
Alternatives for structured settlement
In case you received a structured settlement and wish to have the lump sum cash settlement instead, you can. Nowadays there are plenty of insurance companies or financial institutions that are willing to purchase a structured settlement. This means that structured settlement recipients can sell their settlement in exchange of a lump sum of instant cash.