What Is a Structured Settlement and What Are The Benefits

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For many of us who have been through the Justice system. We know the huge slow churning wheel of time that seems to make many cases takes years to complete and agree upon mutual settlements. The court system can sometimes be a drag and proves to be even more expensive to see through a case than to being awarded a settlement. Many of this has changed with the introduction of Structured Settlements.

A structured settlement is a financial or insurance arrangement whereby a claimant agrees to resolve a personal injury tort claim by receiving periodic payments on an agreed schedule rather than as a lump sum. The increased popularity was due to several rulings by the IRS, an increase in personal injury awards, and higher interest rates. The IRS rulings changed policies such that if certain requirements were met then claimants could have federal income tax waived.] Higher interest rates result in lower present values, hence annuity premiums, for deferred payments versus a lump sum. Structured settlement payments are sometimes called periodic payments and when incorporated into a trial judgment is called a “periodic payment judgment."

What is Structured Settlement Annuities

An Annuity overall is termed as a fix amount of money paid yearly to an individual. Structured settlement annuities are complex contracts or products, paid out to injured parties in lieu of one large lump sum.The payee does not or will never own the annuity, but instead is controlled by the defendants insurance company.

Some Types of Annuities

Immediate Annuity

·                     An immediate annuity provides income right away or at least within a year after you buy it. You plunk down a big lump sum payment, which is also called a single premium, and start receiving an income stream from that money each month. For example, let’s say you receive a life insurance payment of one million dollars after taxes and you want to create a monthly income from investing that money in an annuity.

Differed Annuity

·                     The other broad category of annuities is a deferred annuity, where you receive income at a future date. You make one or multiple contributions during the annuity’s “savings phase” and then receive income either as periodic payments or as a lump sum during the “distribution phase.” So it’s similar to a retirement account where you set aside money that you access in the future.

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