What is a structured settlement?

You may have heard the term structured settlement before on the radio or television. Lawyers often make ads relating to this term. You most likely don’t understand the complete meaning of the terms even if you have one already. This article will explain to you exactly, “What is a structured settlement?” If by chance you have won a lawsuit you have two choices; to get paid in a single lump-sum large payment or your money is structured to pay in installments.

Taxes Run the World

Is there anything that you need to know about how a structured settlement works?  Even if you are in the process of claiming yours, with all the legal jargon involved, you may not quite understand what you are being told about how you will receive your payment. Is there anything that you haven’t been told that you need to understand? One thing that is continuous is that they are based on taxes.

How does a structured settlement work?

For those who have been injured by another party, either by work, motor vehicle, or other means and win their case, can generally decide how they would like to be paid. They can either get their money in a single payment or over time in a structured settlement. This can be a tough choice to make and it depends on different factors within the case and circumstances. You need to consider how much taxes you will be charged for both situations. Is it a expensive to get your payment at once? If so you might want to have it broken down into smaller sums of money that aren’t eating up your cash. There are other reasons you may want to opt for a structured settlement. If you have troubles managing your funds and enjoy shopping a bit too much or if you have long term plans with it, may determine how you want to receive your money.

Structured Settlement Payment Versus Lump Sum Payment

If you don’t wish to receive regular payments of your court-ordered cash settlement, you can choose to receive your money in one large lump sum. This is one payment that is made by the defendant or insurance company that pays off any legal liability that you are owed in one payment. You will not receive any more money in the future if you choose this method.

Example of a Payment Plan

This article explains how a structured settlement works. It is always easier to understand a concept once you can see an example of the numbers involved. When you win a court case where you sued for money, you can get it paid to you at once in a lump sum or over time. For example, if you won $600,000 and want it once a year for ten years, you would get $60,000 a year. If you want it twice a year, you would get $30,000 every 6 months for 10 years. This may help someone to save their money owe the long run. It can be created in a way that is the most beneficial to you.

How Do You Receive Your Money?

When your case ends and  if you choose to be paid via a structured settlement, the winnings get sent to a life insurance company. It is imperative that it goes to a company that has been around a long time and will continue to be around. If the structured settlement company goes bankrupt, so do you. If you choose a good one, you should be all right, but of course, there is always some risk involved.

Negotiation Time

One of the good things about getting a structured settlement is getting to set the terms. You aren’t stuck with whatever terms are thrown at you. This is your You have a say.

  • How long the structure lasts
  • When would you like to get it? Each month, every six months?
  • Choose the amount of your payments
  • At the end, when your settlement is almost paid off, do you want a lump sum amount?
  • Stop payment if you pass away or keep paying a family member or friend.

Options Available to You

  • Many times someone receiving a structured settlement has been out of work for awhile and is having some difficulty paying the rent, electric, and other utilities. Most likely some credit card debt has bitten them as well. A large first payment can be set up, and the following payments will be smaller.
  • Expenses that are built into the settlement can also be arranged. If there is a big surgery or payment for college coming up, it can be built in.
  • Your money can go up in time starting low and ending high or vice versa.
  • You can even wait until you retire to get paid if you like. Some parents set up the settlement for their children to be able to get at 25 when they are responsible enough to handle the money.

You Can Sell a Structured Settlement

If for any reason you need to do something that is going to be costly like opening a new business or buying a house, you can sell your structured settlement. You may not feel like you can wait for your money to roll in, in some cases. There is a process involved in doing this that consists of 5 steps.

  1. If selling your structured settlement has no negative consequences on your financial future and your reasons are good, you can make the decision which is the first part of any big process.
  2. Look around for a legitimate company that funds the sales of structured settlements. Get one with a rate that is low and understands the court processes involved. Always get a company that the BBB or Better Business Bureau has approved and rated highly.
  3. Once you have picked your structured settlement buyer company, you may begin filling out the documents and paperwork that is needed.
  4. After all paperwork has been signed, you need a judge to say yes to your request to sell your structured settlement. You will be required to have a waiting period for your benefit so that you have time to change your mind if you decide. You have to show that the money is going to a worthy cause and the rest of your family will not be in dire straights because of the sale.
  5. An insurance company then gets the money to send to you once your request is approved and your waiting period is over.

Buying a Structured Settlement

On the other side of the spectrum, you can become a structured settlement buyer. There is an association that handles the brokerage of these deals called the NSSTA or National Structured Settlements Trade Association. This includes insurance companies, insurance brokers and other types of financial organizations that handle structured settlements. It is imperative that only buy from a member of this association as they are held to a strict code of ethics. This association can also help you get a lawyer who is experienced and has your best interests at heart.

Talking to Your Lawyer

Once you have obtained representation, your lawyer can explain the charges involved in purchasing a structured settlement. If litigation is involved, expect it to cost more. Fees vary depending on how much work your attorney has to do and how much the settlement is for. You may be able to make payments on the fees if you ask in advance.

After Buying

Once your structured settlement investments have been bought, you can then arrange a schedule of payment. This is completely up to you and you can get it every month, day, year or however you wish.

Tax Obligations

You want to study up on the laws regarding structured settlement buying and selling as well as if you are the receiver of a settlement. You want to pay as little taxes as you can legally on your money. Depending on how It is structured, you can save a lot.

Learning the Laws Where You Live

This is a situation where you will want to understand the laws pertaining to structured settlements. You need to find out if the area in which you live, allows for such payment arrangements. Most states in the USA permit it.

Ensuring Full Payments if You are a Buyer

If you have purchased a settlement from a seller, you want to ensure that you get the full amount. You want them to pay it in full. Arrange for rebates to go to them as well. This is an incentive for them to hold up their end of the bargain.

Pros And Cons Of Structured Settlement Annuities

As with anything, there is always pros and cons to doing a structured settlement. They are great for many different situations and make the money lasts lot longer.


  • If you have agreed to the terms and set up a payment plan, you better be happy with it as you are in an inflexible contract. They are difficult to change even if your life situation changes drastically. There is no renegotiation of the agreement.
  • If you have a financial emergency, you can not access your cash immediately.
  • You are not allowed to invest your money in other investments that pay higher rates.
  • If you decide to dip into your settlement and don’t sell the payments, you will be paying out a lot to have access to your money. If you are younger than the age of 59 and a half, you will be required to pay something called a surrender charge as well as other fees imposed by the IRS.


  • If you pass away before you are paid, you can leave the money to someone else. This person will continue to get the money without having to pay any taxes on it.
  • Get paid when you want. You may set up your payment arrangements however you wish. It is not able to be changed, but the choice is yours in how you wish to receive your money.
  • The market does not determine structured settlements. Other types of investments, stocks and bonds depend totally on how the market is doing. Your money is there and insured for steady payment to you.

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