Structured settlements

Definition

Structured settlements are financial arrangements in which a claimant receives periodic payments instead of a lump sum, often resulting from legal settlements. These payments are typically designed to provide long-term financial security.

5 Must Know Facts For Your Next Test

1. Structured settlements often involve annuities, providing regular payments over time.
2. They are commonly used in personal injury cases to ensure the claimant has ongoing financial support.
3. The value of structured settlement payments is determined by principles of the time value of money.
4. Payments can be customized in terms of frequency and amount based on the needs of the recipient.
5. Structured settlements can offer tax advantages, as many types of settlement payments are tax-free.

Review Questions

• What is the primary benefit of choosing a structured settlement over a lump-sum payment?
• How does the time value of money principle apply to structured settlements?
• In what types of legal cases are structured settlements most commonly used?

Related terms

Annuity: A financial product that provides regular payments over a specified period or for life.

Lump Sum Payment: A single payment made at one time, as opposed to multiple smaller payments.

Time Value of Money: The concept that money available now is worth more than the same amount in the future due to its potential earning capacity.