Structured settlements are financial tools used typically in personal injury or insurance claims to compensate the claimant. Instead of receiving a lump sum payment, the claimant agrees to receive periodic payments over a determinable period, which might last for several years, or could extend for the lifetime of the claimant.
Key Features
- Predictability : Structured settlements provide fixed, predictable payments, which can be advantageous for budgeting and financial planning.
- Tax Benefits : These payments are typically tax-free at both federal and state levels in the United States, under the Periodic Payment Settlement Act of 1982.
- Security : Provides long-term financial security and budget management for individuals who might otherwise have difficulty managing a large sum of cash.
Advantages
- Structured settlements ensure the recipient has steady income for future expenses that can be associated with injury—an essential factor in avoiding future financial difficulties. They also reduce possible recklessness associated with being granted a large sum up front.
Disadvantages
- Less flexibility compared to a one-time lump sum payment because the terms are often set once and not alterable. Also, if the inaugural calculations of the annuity do not aptly account for needs changes, the recipient could later find that the payments do not completely cover their future expenses.
Legal Foundation
Structured settlements have been endorsed by federal and state laws as seen, in part, via the Periodic Payment Settlement Act of 1982 which encourages the use of structured settlements in personal injury and wrongful death claims.
