structured settlement

Structured settlements are financial compensation plans used to give personal injury claimants scheduled payments as agreed during litigation. Instead of lump-sum payments, the claimant receives payments on a periodic basis.

When is a structured settlement considered

The severity of a personal injury will determine the likelihood of a structured settlement. Gravely serious injuries can be quite costly, necessitating a structured approach instead of a lump sum payment.

Getting hurt at work may push the employer to consider a structured settlement. Not only does it ease the financial strain on the company, but it also allows for a tax-free income for the individual on a long-term basis. This often stabilizes the workers’ livelihood in spite of the inability to work.

Victims of medical negligence may sue the instigating parties for compensation. Given the costly nature of these compensations, it is possible to set up a structured settlement.

Once the court determines that the accused is at fault in a wrongful death claim, the surviving family and legal beneficiaries may receive a structured settlement as compensation.

What the Structured Settlement Process entails

There is a procedural approach to these settlements. The litigant sues the accused in a bid to seek compensation. This compensation is sought for illness, injury, or wrongful death. The accused may often seek to settle the matter before trial by offering money as a structured settlement. Should the case proceed to court and the accused is found to be at fault, they may be legally pushed to come up with a settlement.

A qualified professional is often assigned to help draw up the terms of the agreement. In this stage, an amount is determined for each repayment across a relevant repayment period. This process will also determine whether the installments will be constant or vary from time to time. The defendant is also expected to meet the annuity costs for the claimant. This annuity, usually obtained from an insurance company, should be in sync with the terms of the settlement. The defendant may also be expected to meet a lump sum cost for legal fees or for trust funding.

The annuity contract safeguards the claimant through a series of periodical payments. This contract is given the interest to ensure its security against fluctuations in the cost of living. In doing so, the claimant may only get cash from the settlement by selling its future payments.

Pros and Cons of Structured Settlements

There are varied benefits and cons to structured settlements, as seen below.


Quite notably, structured settlements are not subject to taxation as they are not viewed as income. This allows the claimant to enjoy the accruing interest without liability.

Being the beneficiary of a structured settlement does not keep an individual from enjoying other possible benefits.

Structured settlements are immune to the ever-dynamic financial markets.

A structured settlement ensures a long-term financial plan which eliminates extravagant urges to ensure a secure financial future.

The beneficiaries of the claimant are able to enjoy the benefits of the settlement in case of the claimants’ untimely death. The tax-free status of the settlement does not change.

Structured settlements can be tailored to varied timelines. The compensation may also be released immediately or be set up for release at a preferred time in the future.

The annuity for the structured settlement is also secured against insolvency. As such, the claimant does not lose their benefits in case the insurance company is declared insolvent.

Having an annuity contract on your settlement guarantees more compensation over time in comparison to a lump-sum payment.


The terms of a settlement contract are often rigid. This means that once the agreement is finalized, there is very little room for amendment and negotiation. The terms may not be changed regardless of prevailing market conditions.

While the settlement is ideally tax-free, a few aspects, such as legal fees, may be subject to taxation.

With a structured settlement, the claimant is not able to access the entirety of the settlement when needed. As such, the repayment may not be available for timely investments with higher possible returns. They may also not be able to access the required funds during emergencies.

It is possible for unregulated insurance companies to infringe on your benefits through administrative fees. It would be ideal to consider regulation before agreeing to a contract.

The information herein better equips an individual on structured settlements and what they entail.