| Structured settlements have become a natural part of | | | | better off accepting a lump sum settlement and then |
| personal injury and worker's compensation claims in | | | | investing it for themselves. |
| the United States, according to the National Structured | | | | Here are some other important points to keep in mind |
| Settlements Trade Association (NSSTA). In 2001, life | | | | about structured settlements: An injured person with |
| insurance members of NSSTA wrote more than | | | | long-term special needs may benefit from having |
| $6.05 billion of issued annuities as settlement for | | | | periodic lump sums to purchase medical equipment. |
| physical injury claims. This represents a 19 percent | | | | Minors may benefit from a structured settlement that |
| increase over 2000. | | | | provides for certain costs when they're young--such |
| A structured settlement is the dispersement of money | | | | as educational expenses--instead of during adulthood. |
| for a legal claim where all or part of the arrangement | | | | Special Considerations |
| calls for future periodic payments. The money is paid in | | | | - Injured parties should be wary of potential exploitation |
| regular installments--annually, semi-annually or | | | | or hazards related to structured settlements. They |
| quarterly--either for a fixed period or for the lifetime of | | | | should carefully consider: |
| the claimant. Depending on the needs of the individual | | | | - High Commissions - Annuities can be highly profitable |
| involved, the structure may also include some | | | | for insurance companies, and they often carry very |
| immediate payment to cover special damages. The | | | | large commissions. It is important to ensure that the |
| payment is usually made through the purchase of an | | | | commissions charged in setting up a structured |
| annuity from a Life Insurance Company. | | | | settlement don't eat up too much of its principal. |
| A structured settlement structure can provide | | | | - Inflated Value - Sometimes, the defense will |
| long-term financial security to injury victims and their | | | | overstate the value of a negotiated structured |
| families through a stream of tax-free payments | | | | settlement. As a result, the plaintiff winds up with much |
| tailored to their needs. Historically, they were first | | | | less than was agreed upon. Plaintiffs should compare |
| utilized in Canada and the United States during the | | | | the fees and commissions charged for similar |
| 1970s as an alternative to lump-sum payments for | | | | settlement packages by a variety of insurance |
| injured parties. A structured settlement can also be | | | | companies to make sure that they're getting full value. |
| used in situations involving lottery winnings and other | | | | - Conflict of Interest - There have been situations |
| substantial funds. | | | | where the plaintiff's attorney has referred the client to |
| How a Structured Settlement Works | | | | a particular financial planner to set up a structured |
| When a plaintiff settles a case for a large sum of | | | | settlement, without disclosing he would receive a |
| money, the defendant, the plaintiff's attorney, or a | | | | referral fee. In other cases, the plaintiff's lawyer has |
| financial planner may propose paying the settlement in | | | | set up a structured settlement on behalf of a client |
| installments over time rather than in a single lump sum. | | | | without revealing the annuities are being purchased |
| A structured settlement is actually a tradeoff. The | | | | from his own insurance business. Plaintiffs should know |
| individuals who were injured and/or their parents or | | | | what financial interest their lawyer may have in relation |
| guardians work with their lawyer and an outside broker | | | | to any financial services being provided or |
| to determine future medical and living needs. This | | | | recommended. |
| includes all upcoming operations, therapy, medical | | | | - Using Multiple Insurance Companies - It's advisable to |
| devices and other health care needs. Then, an annuity | | | | purchase annuities for a structured settlement from |
| is purchased and held by an independent third party | | | | several different companies. This offers protection in |
| that makes payments to the person who has been | | | | the event a company that issued annuities for a |
| injured. Unlike stock dividends or bank interest, these | | | | settlement package goes into bankruptcy and defaults. |
| structured settlement payments are completely | | | | Benefits of Selling A Settlement |
| tax-free. What's more, the individual's annuity grows | | | | A structured settlement is specifically designed to |
| tax-free. | | | | meet the needs of the plaintiff at the time it's created. |
| Pros and Cons | | | | But what happens if the installment arrangement no |
| As with anything, there's a positive and negative side | | | | longer works for the individual? If you need cash for a |
| to structure settlements. One significant advantage is | | | | large purchase or other expenses, consider selling your |
| tax avoidance. When appropriately set up, a structured | | | | structured settlement. Many companies can purchase |
| settlement may significantly reduce the plaintiff's tax | | | | all or part of your remaining periodic settlement |
| obligations (as a result of the settlement). Another | | | | payments for one lump sum. This can boost your cash |
| benefit is that a structured settlement can help ensure | | | | flow by providing funds you can use immediately to |
| a plaintiff has the funds to pay for future care or | | | | buy a home, pay college tuition, invest in a business or |
| needs. In other words, a structured settlement can help | | | | pay off debt. |
| protect a plaintiff from himself. | | | | If you're considering cashing out your structured |
| Let's face it: Some people have a hard time managing | | | | settlement, contact your attorney first. Depending on |
| money, or saying no to friends and family wanting to | | | | the state you live in, you may have to go to court to |
| "share the wealth." Receiving money in installment can | | | | get approval for the buyout. About two thirds of |
| make it last longer. | | | | states have laws that limit the sale of structured |
| A downside to structure settlements is the built-in | | | | settlements, according to the NSSTA. Tax-free |
| structure (no pun intended). Some people may feel | | | | structured settlements are also subject to federal |
| restricted by periodic payments. For example, they | | | | restrictions on their sale to a third party, and some |
| may want to buy a new home or other expensive | | | | insurance companies won't assign or transfer annuities |
| item, yet lack the funds to do so. They can't borrow | | | | to third parties. |
| against future payments under their settlement, so | | | | When selling your structure settlement, check with |
| they're stuck until their next installment payment arrives. | | | | multiple companies to make sure that you get the |
| And from an investment perspective, a structured | | | | highest payoff. Also, be sure the company buying your |
| settlement may not make the most sense for | | | | settlement is reputable and well-established. And keep |
| everyone. Many standard investments can provide a | | | | in mind that if the deal sounds too good to be true, it |
| greater long-term return than the annuities used in | | | | probably is. |
| structured settlements. So some people may be | | | | |