What is a Structured Settlement?

Shawn Plummer

CEO, The Annuity Expert

Definition of a Structured Settlement

A structured settlement is a financial arrangement in which a plaintiff in a legal case receives compensation over time instead of in a single lump sum. This is often the result of a personal injury lawsuit, wrongful death suit, or workers’ compensation case. The payments are made through annuities, providing regular income over a set period.

How Structured Settlements Work

  1. Origin: After a lawsuit, the parties agree to a settlement.
  2. Agreement: The defendant agrees to pay a certain sum spread over time.
  3. Annuity Purchase: The defendant or its insurer buys an annuity from a life insurance company.
  4. Payment Schedule: The annuity specifies payment amounts, intervals (e.g., monthly, yearly), and duration (e.g., 20 years, lifetime).
Structured Settlement

Structured Settlement Annuity

A structured settlement annuity is a financial instrument used to make the payments of a structured settlement. It’s purchased by the defendant and is responsible for providing the periodic payments to the plaintiff.

Key Features of a Structured Settlement Annuity

  1. Guaranteed Payments: Offers guaranteed, scheduled payments.
  2. Tax Benefits: Payments are often tax-free for the recipient.
  3. Customization: Payment schedules can be customized to the recipient’s needs.
  4. Security: Offers financial security over a long period.
What Is A Structured Settlement Annuity

Advantages of a Structured Settlement

  • Financial Management: Helps in managing large sums of money over time.
  • Tax Benefits: The payments received are usually tax-free.
  • Predictable Income: Ensures a steady income stream for future expenses.
How Does A Structured Settlement Annuity Work?

Disadvantages of a Structured Settlement

  • Inflexibility: Once set, the terms are difficult to change.
  • Lack of Control: The recipient doesn’t control the investment of the funds.
  • Delayed Access: The recipient can’t access a large amount immediately for urgent needs.
Structured Settlement Annuities

Comparison of Structured Settlements and Lump Sum Payments

FeatureStructured SettlementLump Sum Payment
Payment TimingOver time (years)Immediate
Tax ImplicationsTypically tax-freeTaxable depending on case
Financial ManagementEasier to manageRequires self-management
SecurityPredictable, long-termDepends on personal management


Structured settlements, through annuities, offer a secure and tax-efficient way of receiving compensation over time. While they provide financial stability, their inflexibility can be a limitation. Understanding the balance between security and flexibility is key to deciding if a structured settlement is right for you.

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Structured Settlement Annuity

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Frequently Asked Questions

Why must Structured Settlements be court-approved?

The Federal Periodic Payment Settlement Act of 1982 made it mandatory for court approval on all sales of structured settlements to ensure the consumer’s best interest is put first and limit any party from taking advantage of the settlement recipient.

How are structured settlements taxed?

Regular payments from structured settlement annuities are tax-free.

Can structured settlement payments be sold?

Structured Settlements can be sold, and there is no set formula or standard for selling the payments. Seek an attorney or accountant to explore settlement planning options.

What happens to a structured settlement in a divorce?

Each state divides assets in an equitable or community property approach. If the state utilizes the equitable distribution method and the settlement was obtained before marriage, the settlement probably will be kept with the settlement’s owner. However, if the state takes the community property route, the state can divide the settlement regardless of whether the settlement was received before or during the marriage.

Can a structured settlement be inherited?

Since the structured settlement annuity is an income annuity, inheritance is treated as such. If the annuity is set up for life contingent payments (life only, joint, and survivor), there is typically no death benefit. This exception would be if a guaranteed term (single or joint life with a period certain) were put into place. If the settlement is structured to pay over a guaranteed fixed period of time, the annuity can usually be inherited for the remainder of the guaranteed installments. Inherited structured settlements should still provide tax-free payments to the beneficiary. Finally, there is a commutation rider on some settlements that allows the inherited annuity to be paid out in a lump-sum payment, so check on that as well.

Which insurance companies sell structured settlement annuities?

Are structured settlement annuities protected and insured?

Structured annuity contracts are protected by your state guaranty association, in which life insurance companies must set aside a reserve to the SGA in case of company insolvency.

What is a structured settlement?

A structured settlement is a type of financial arrangement in which an individual or family receives periodic payments over time instead of a lump sum payment. The payments are based on the terms established in a legally binding agreement between the parties involved.

How to find my structured settlement?

To find your structured settlement, contact the company that issued it or an attorney who specializes in this type of agreement. They can provide information on the terms of your settlement and what resources are available.

Can a structured settlement be changed?

Yes, a structured settlement can be changed under certain circumstances. Depending on the type of agreement, additional funds or an extension of payments may be allowed by the courts. However, any adjustments must adhere to the terms of the initial agreement.

How does a structured settlement annuity work?

A structured settlement annuity is a payment plan designed to provide long-term financial security. The payments are issued in fixed amounts over a predetermined period of time and can be customized according to an individual’s needs. This type of annuity provides guaranteed payments forever or for a certain length of time, depending on the contract. Funds from the annuity may also be invested in order to generate additional income.

Do structured settlements earn interest?

Yes, structured settlements can earn interest. Depending on the terms of the settlement, the interest rate may be fixed or variable. Generally speaking, a higher interest rate is associated with longer-term payments and a lower interest rate is associated with short-term payments. The amount of interest earned can also be affected by other factors, such as the type of investments and tax considerations.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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