Structured Settlement

Definition

A structured settlement is a financial arrangement in which a claimant agrees to resolve a personal injury lawsuit or workers' compensation claim by receiving periodic payments instead of a lump-sum payment. These payments are typically funded by an annuity and are designed to provide the claimant with a steady stream of income over an extended period of time.

5 Must Know Facts For Your Next Test

1. Structured settlements are often used in personal injury cases, workers' compensation claims, and other legal disputes where the claimant has suffered a significant loss or injury.
2. The periodic payments in a structured settlement are typically funded by an annuity, which provides a guaranteed stream of income for the claimant.
3. Structured settlements can offer tax advantages, as the periodic payments are generally not subject to immediate taxation like a lump-sum payment.
4. The terms of a structured settlement, including the payment schedule and the duration of the payments, are negotiated between the parties involved in the legal dispute.
5. Structured settlements can provide financial security and stability for claimants, especially those who may have ongoing medical expenses or other long-term needs.

Review Questions

• Explain the purpose of a structured settlement and how it differs from a lump-sum payment.
  • The purpose of a structured settlement is to provide the claimant with a steady stream of income over an extended period of time, rather than a one-time lump-sum payment. This can be particularly beneficial for individuals who have suffered a personal injury or workers' compensation claim, as the periodic payments can help cover ongoing medical expenses and provide financial stability. Unlike a lump-sum payment, which may be subject to immediate taxation, the periodic payments in a structured settlement are generally not subject to immediate taxation, making it a more tax-efficient option for the claimant.
• Describe the role of an annuity in a structured settlement and how it provides financial security for the claimant.
  • In a structured settlement, the periodic payments are typically funded by an annuity, which is a financial product that provides a series of payments at regular intervals, often for a specified period of time or for the lifetime of the recipient. The annuity provides a guaranteed stream of income for the claimant, ensuring that they have a reliable source of funds to cover ongoing expenses and medical needs. This can be particularly beneficial for individuals who may have limited earning potential or who require long-term care due to their injuries. The annuity can also offer tax advantages, as the periodic payments are generally not subject to immediate taxation like a lump-sum payment.
• Analyze the potential benefits and drawbacks of a structured settlement compared to a lump-sum payment in the context of personal injury or workers' compensation claims.
  • Structured settlements can offer several potential benefits for claimants in personal injury or workers' compensation cases. The guaranteed stream of income can provide financial security and stability, helping to cover ongoing medical expenses and other long-term needs. Additionally, the tax advantages of structured settlements can make them a more financially prudent option compared to a lump-sum payment. However, there may also be drawbacks to consider. Claimants may feel that they have less control over their finances with a structured settlement, as they are unable to access the full amount of the settlement immediately. There may also be concerns about the long-term viability of the annuity provider or the potential for changes in tax laws that could impact the benefits of the structured settlement. Ultimately, the decision to accept a structured settlement or a lump-sum payment should be carefully evaluated based on the individual's unique circumstances and long-term financial goals.

Related terms

Annuity: An annuity is a financial product that provides a series of payments at regular intervals, typically for a specified period of time or for the lifetime of the recipient.

Lump-Sum Payment: A lump-sum payment is a one-time, single payment made to a claimant, as opposed to a series of periodic payments.

Personal Injury Lawsuit: A personal injury lawsuit is a legal action brought by an individual who has suffered physical or emotional harm due to the negligence or wrongful actions of another party.