For over 40 years, structured settlements have proven to be a popular method of settling wrongful death, physical injury, and workers’ compensation cases.
So what is a structured settlement?
A structured settlement is simply a settlement consisting of multiple payments over time rather than one single payment at the time of settlement. So why would a claimant agree to a structured settlement rather than insisting on all of their money now?
There are three main advantages to structured settlements:
- Payments are guaranteed
- Payments are income-tax-free (both Federal and State)
- Payment designs are flexible.
"Anyone settling a personal injury claim should seriously consider a structured settlement as part of their plan for financial recovery. Structured settlements can stretch settlement funds by providing tax-free payments for lost income, medical bills or other future needs, which delivers tremendous long-term security for injured people and their families. Berkshire Hathaway is proud to be a leading provider of structured settlement annuities."
Payments are guaranteed. Structured settlement payments are usually guaranteed by an insurance company through a structured settlement annuity. Most insurance companies that offer structured settlement annuities are rated A+ or stronger with AM Best. Here’s a list of popular providers:
With few exceptions (ie, cases against the United States DOJ), structured settlement annuities are utilized in conjunction with a Qualified Assignment which serves to protect the claimant from any future bankruptcies of the defendant. To learn more about Qualified Assignments, please visit What is a qualified settlement?
Payments are tax-free. Structured settlement payments are free from both Federal and State income tax. Because payments are income-tax-free, the money may last longer since it is not subject to the unknowns of tax rates in the future. For more information on taxes and structured settlements, please visit Are structured settlements subject to income taxes?
Payment designs are flexible. Structured settlements payments can be made monthly, quarterly, semi-annually, annually, or even in lump-sum payments on specific dates in the future. Structured settlements can be customized to meet a variety of needs such as living expenses, ongoing medical expenses, and educational expenses. Payments may even be guaranteed as long as the claimant lives to provide lifetime, tax-free, income. These types of guarantees often eliminate the stress of having to manage investments, navigate market fluctuations, and worry if the money will last as long as it’s needed. For more information, please visit When is a structured settlement suitable?
In conclusion, structured settlements should always be considered as an alternative to lump-sum settlements. This type of guaranteed and tax-free income is only available to recipients of wrongful death, physical injury, and workers’ compensation settlements. They provide the security and predictability of a guaranteed fixed income without the variables of investment management fees, fluctuating returns, and the unknowns of state and federal tax rates in the future.
If you’d like to learn more about structured settlements or if you’d like structured settlement quotes to see exactly how they might benefit you in your case, reach out to us. We’re here to help.