For those who aren’t incredibly familiar with law based terminologies, a structured settlement is a scenario where the person/company who went on to file a lawsuit gets the amount in the form of periodic payment. In simple words, the case doesn’t go to trial and there is an out of court settlement. The amount that the claimant has been awarded as part of the settlement is given in a series of installations. The term of structured settlement is opposite to the lump sum settlement where the entire amount has to be paid up front.
Structured settlement is often applicative in the case of product liability or injury cases. The case varies from personal injury to of a large group of people being affected. An example is where a pharmaceutical company is sued if the drugs manufactured causes negative health complications. This transforms to a corporate level case. A pharmaceutical company was sued because one of its drugs (Thalidomide) was causing health issues in children. This was the first instance that a structure settlement was used.
Attributes and Benefits of Structured Settlement
The amount that is paid as in the settlement is considered tax free as per the Periodic Payment Settlement Act of 1982. The forms can vary from monthly to annual. In order to pay out the amount, an annuity contract is drawn. The annuity is purchased from a Life Insurance company.
Such a settlement is favorable to the victim/claimant since it is able to provide them with financial security along with tax free payments. In this case, a broker agency can be involved, and they’ll provide structured settlement quotes, allowing the claimant to draw out a financial plan.
Structured settlement has an additional benefit as there is no need for finance management which is a requirement in the case of lump sum agreement. With periodic amounts, the hassle of utilizing a lump sum amount is avoided automatically. The payments due in installation can be structured in different ways to prevent the consumer from inflation. Theses settlements also provide an advantage in the form of better tax management.
While making an annuity contract, there’s a need to check the commission rate of the insurance company since no one using thinking to sign to the agreement would be looking for a contract with high commission. There are also options where is someone needs a higher sum of money, the settlement that has been structured can be traded for a lump sum. There are broker agencies and legal financing companies who specialize in the trade. It’s recommended to talk to more than one company for the case, as the company who trades on the behalf often benefit from high profits due to lack of research and knowledge. Some annuity companies also provide rebates later on.
With the main premise explained above, it is important to understand how the structured settlement may or may not favor the needs. It depends on the severity of the injury and also the skills of the utilizing body in terms of financial management.