What is a Structured Settlement?
The short definition of a structured settlement is a group of payments scheduled over the course of time, with the intention of paying a debt. These payments are often a form of compensation for a personal injury or product liability. If we break down this definition into specifics, it is important to note that this debt is most likely due to the result of winning a liability or injury lawsuit, and the deferred payments have been set by the attorney's as being the most beneficial arrangement for all parties involved.
When someone wins a structured settlement, one of two things has occurred. Either the defendant has been tried and found guilty in a court of law, and have been ordered to pay installments to satisfy the terms of the lawsuit, or the they have settled out of court with an agreed deferred payment plan. These deferred payments can be monthly, or they can also be arranged annually. They will be issued regularly over an agreed amount of time until the full amount has been awarded. How often the payments are to be received will depends on the circumstances of the case, the extent of damages, and the age and medical needs of the plaintiff.
There are several reasons why a structured settlement is the preferred method of payment in most court cases. One, this alternative allows for a steady stream of income for the plaintiff, who may have a long road of medical bills ahead. Two, by only allowing incremental payments, the possibility of the plaintiff squandering a large sum of money can be greatly reduced. Three, The IRS has allowed a ruling which makes deferred payments a tax haven. In other words, most federal and state taxes can be avoided if payment is accepted under these terms.
In terms of the defendant, there are several advantages to purchasing one or more annuities and settling out of court, as opposed to paying the full cost of a trial. Annuities guarantee payment to the plaintiff, while allowing the defendant to avoid excessive attorney fees. This is one reason why structured settlements have become popular in such common law countries as the United States, Canada, Australia, and England. Closing a case via a structured settlement is probably the quickest and most cost effective means to resolving any physical injury claim, while also maintaining a fair resolution to all parties.
The following example provides insight to the question 'What is a Structured Settlement' with statistics, explanations of how it works, what it can be used for, and how to sell your settlement payments. Additionally, you'll notice there is also details on present value and suggestions on determining what a settlement can be worth.