Structured settlements provide financial stability by distributing compensation over time instead of in a single payment. They are commonly used in legal cases, ensuring recipients receive a steady income.
How structured settlements work
A structured settlement is an agreement where a claimant receives payments over a set period rather than a lump sum. The defendant or their insurer funds an annuity, which guarantees ongoing payments.
The National Structured Settlements Trade Association (NSSTA) states:
“Structured settlements provide a secure way for recipients to receive compensation while benefiting from long-term financial stability and tax advantages.”
For instance, if a person wins a $600,000 settlement, they might receive $60,000 annually for ten years instead of receiving the full amount upfront. This helps ensure responsible financial management.
Key benefits of structured settlements
Structured settlements offer various advantages, especially for those who require consistent financial support.
- Tax-free payments – Payments are typically exempt from federal and state income taxes under Section 104(a)(2) of the Internal Revenue Code.
- Predictable income – Regular payments provide financial security, reducing the risk of mismanagement.
- Customisation – Payouts can be structured to cover medical bills, education expenses, or long-term care.
The American Bar Association explains:
“Structured settlements help ensure injured parties receive a reliable income stream tailored to their financial needs.”
Selling a structured settlement: Is it a good idea?
Some companies purchase structured settlements in exchange for a lump sum. While this can provide immediate cash, it may lead to financial risks. Courts often evaluate these transactions to ensure they benefit the recipient.
According to The National Association of Settlement Purchasers (NASP):
“Selling a structured settlement may offer quick financial relief, but recipients should carefully consider the long-term consequences before proceeding.”
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Who benefits from structured settlements?
Structured settlements are widely used in cases involving:
- Personal injury lawsuits
- Workers’ compensation claims
- Medical malpractice settlements
- Wrongful death lawsuits
structured settlements
Legal professionals and insurance companies often recommend structured settlements to protect recipients from financial instability.
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Final thoughts
Structured settlements provide long-term financial security, tax benefits, and customisable payment options. However, selling a structured settlement requires careful consideration of future financial needs. Seeking legal and financial advice can help recipients make informed decisions.
