Fri. Jun 2nd, 2023

A Structured Settlement Example

Structured settlements are agreements in which plaintiffs receive periodic payments from defendants instead of a lump sum payout. This provides financial security to the plaintiff and provides them with an ongoing income stream for personal assistance or medical expenses.

Structured settlements are frequently awarded in lawsuits that are resolved outside of court, helping expedite case resolution and lessening financial strain on defendants.

The Structured Settlement Process

Structured settlement processes involve an injured party entering into a negotiation with a defendant or insurer in exchange for periodic payments. Usually, these payments are received by purchasing an annuity (fixed and determinable) issued directly by highly-rated life insurance companies.

Alternatively, the plaintiff can take advantage of long-term income tax-free payments by assigning their annuity to a third-party assignment company. This type of organization specializes in financial services like administration and record keeping necessary for managing these payments.

Claimants with a history of excessive spending or those worried that friends and family might try to take advantage of them can benefit from structured settlements. Attorneys typically assist their clients in creating such agreements which safeguard against unexpected expenditure or requests from loved ones.

Structured settlements can also be utilized to cover ongoing medical care and expenses, such as long-term nursing home care or a child’s educational requirements. For those unable to work due to injuries, these payments provide them with financial security and support.

In addition to financial rewards, plaintiffs and their families can take comfort in knowing they will have a steady source of tax-exempt income throughout their lives. This helps them avoid debt, guarantees they don’t owe the IRS or state any money for damages, and allows them to continue receiving means-tested benefits like Social Security Disability or Medicaid.

Structured settlements offer plaintiffs a safe and predictable means to earn interest on the funds awarded in their settlement. Since they don’t fluctuate with market fluctuations, structured settlements provide steady income that will grow over time. They’re also an effective retirement planning tool that ensures retirees and senior citizens won’t run out of money in later life.

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The Settlement Agreement

In many cases, when parties to a lawsuit are unable to bring their case to trial, they will settle by making an agreement that is signed and approved by a judge. This type of agreement, known as a settlement agreement, usually includes money that the defendant agrees to pay the plaintiff.

This amount is known as the “settlement amount.” An example of such a settlement would be when Neil, the boat owner, is sued for an accident on his vessel; in this instance, the plaintiff might request $5,000 in compensation from Neil to end the suit and end it once and for all.

Another type of settlement amount is a payment made by an employer to a former employee as compensation for ending an employment dispute. Depending on the circumstances and amounts involved, this form of compensation may be tax-exempt.

If the employee has been an excellent worker for some time and done a commendable job, their employer may offer to pay them a fair settlement sum. This type of agreement is created as a compromise between both parties to resolve employment issues that are causing stress or problems at work.

An essential aspect of any settlement agreement is its clarity, specificity and legal binding nature. This means outlining the exact amounts being paid out, how they will be made (pay vs lump-sum), when they will be received and if changes can be made.

In order to prevent one party from using the settlement as a legal leverage and having a court order the other to comply, the agreement should clearly and unequivocally state that it supersedes any previous agreements between them.

When entering into a settlement agreement, parties should agree to keep all information contained therein confidential. This is especially essential for employers attempting to resolve workplace disputes as it ensures the parties do not discuss its terms with employees who require knowledge.

The Annuity

As a plaintiff in a personal injury case, you can receive periodic payments from a structured settlement to cover ongoing medical expenses and other costs associated with the lawsuit. This type of payment plan is commonly referred to as an annuity.

An annuity is a series of payments made at regular intervals, such as weekly, monthly, quarterly or yearly. They could take the form of deposits into savings accounts or mortgages, insurance premiums or other fixed sources of income.

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Annuities are accessible to individuals of any wealth level and can help you create a secure retirement fund that will last throughout your lifetime. They provide guaranteed income that’s usually tax-exempt.

Many people opt to purchase an annuity as part of a structured settlement, seeking the security and stability that comes from knowing they will receive an ongoing stream of income throughout their lives. Furthermore, they appreciate that payouts from annuities are usually tax-exempt, allowing them to use these funds for various needs.

When purchasing an annuity, you’ll need to decide the payment frequency that meets your needs and situation. This decision depends on the size of the annuity and how much investment you wish to make into it.

In a personal injury case, defendants often assign their obligation to make periodic payments through a life insurance company annuity (also referred to as an “Assignment Company”). Under such an agreement, the defendant pays a certain amount each month to the assignment company, who then distributes those funds back to the plaintiff.

Another type of annuity is a guaranteed annuity, which guarantees a set amount to be paid out each month regardless of economic circumstance. This type of annuity is especially helpful for minors since the payouts provide them with financial security until adulthood.

When purchasing an annuity, two important considerations are the surrender period and fees. The surrender period refers to how long an investor must wait before being able to withdraw any of their invested funds without incurring a penalty.

The Payments

Structured settlements can provide long-term financial security to some people. Payments can be designed to match monthly income or provide lump sum payouts in the future for upcoming expenses like college tuition or retirement.

Payments can also be adjusted according to changing needs, which can be especially helpful for individuals facing serious medical or financial hardships.

Investments like stocks, bonds and mutual funds that fluctuate with market fluctuations are less risky. With structured settlement annuities, however, your money is guaranteed by the insurance company issuing them – providing a major advantage over investing it yourself.

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Another advantage of a structured settlement is that payments from these agreements are tax-exempt. The Periodic Payment Settlement Act of 1982 established regulations which classified payments from structured settlements as exempt income, meaning they are exempt from paying taxes.

Many injured victims find financial relief through settlement payments. With these funds, they can pay off debts and start a new life with more financial security and stability than they would have had otherwise.

Structured settlements can be initiated immediately or deferred for a specified number of years. In some instances, the initial payout will be substantial and payments will increase over time; on the other hand, plaintiffs may opt to postpone the initial settlement until later in life when they can better meet their financial obligations.

Structured settlement payouts can be beneficial for meeting immediate practical needs, such as making a home wheelchair-accessible or purchasing reliable transportation. Others may need the money to start paying off their mortgage or pay off overdue bills.

If you decide to sell your structured settlement, there are companies who will purchase it for a fraction of its overall value. However, this approach can be risky for many annuity owners.

While some annuity owners are able to manage their structured settlement income responsibly, many find themselves needing more cash than what their payments will provide. That is when a structured settlement buyer comes into play. These buyers will purchase your stream of structured settlement income at a discount rate based on their estimated future interest rates.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.