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Financial Security through Structured Settlements
Structured settlements have become a natural part of personal
injury and worker's compensation claims in the United States,
according to the National Structured Settlements Trade
Association (NSSTA). In 2001, life insurance members of NSSTA
wrote more than $6.05 billion of issued annuities as settlement
for physical injury claims. This represents a 19 percent
increase over 2000.
A structured settlement is the dispersement of money for a legal
claim where all or part of the arrangement calls for future
periodic payments. The money is paid in regular
installments--annually, semi-annually or quarterly--either for a
fixed period or for the lifetime of the claimant. Depending on
the needs of the individual involved, the structure may also
include some immediate payment to cover special damages. The
payment is usually made through the purchase of an annuity from
a Life Insurance Company.
A structured settlement structure can provide long-term
financial security to injury victims and their families through
a stream of tax-free payments tailored to their needs.
Historically, they were first utilized in Canada and the United
States during the 1970s as an alternative to lump-sum payments
for injured parties. A structured settlement can also be used in
situations involving lottery winnings and other substantial
funds.
How a Structured Settlement Works When a plaintiff settles a
case for a large sum of money, the defendant, the plaintiff's
attorney, or a financial planner may propose paying the
settlement in installments over time rather than in a single
lump sum.
A structured settlement is actually a tradeoff. The individuals
who were injured and/or their parents or guardians work with
their lawyer and an outside broker to determine future medical
and living needs. This includes all upcoming operations,
therapy, medical devices and other health care needs. Then, an
annuity is purchased and held by an independent third party that
makes payments to the person who has been injured. Unlike stock
dividends or bank interest, these structured settlement payments
are completely tax-free. What's more, the individual's annuity
grows tax-free.
Pros and Cons As with anything, there's a positive and negative
side to structure settlements. One significant advantage is tax
avoidance. When appropriately set up, a structured settlement
may significantly reduce the plaintiff's tax obligations (as a
result of the settlement). Another benefit is that a structured
settlement can help ensure a plaintiff has the funds to pay for
future care or needs. In other words, a structured settlement
can help protect a plaintiff from himself. Let's face it: Some
people have a hard time managing money, or saying no to friends
and family wanting to "share the wealth." Receiving money in
installment can make it last longer. A downside to structure
settlements is the built-in structure (no pun intended). Some
people may feel restricted by periodic payments. For example,
they may want to buy a new home or other expensive item, yet
lack the funds to do so. They can't borrow against future
payments under their settlement, so they're stuck until their
next installment payment arrives. And from an investment
perspective, a structured settlement may not make the most sense
for everyone. Many standard investments can provide a greater
long-term return than the annuities used in structured
settlements. So some people may be better off accepting a lump
sum settlement and then investing it for themselves.
Here are some other important points to keep in mind about
structured settlements:
An injured person with long-term special
needs may benefit from having periodic lump sums to purchase
medical equipment. Minors may benefit from a structured
settlement that provides for certain costs when they're
young--such as educational expenses--instead of during
adulthood.
Special Considerations
- Injured parties should be wary of potential exploitation or
hazards related to structured settlements. They should carefully
consider:
- High Commissions - Annuities can be highly profitable for
insurance companies, and they often carry very large
commissions. It is important to ensure that the commissions
charged in setting up a structured settlement don't eat up too
much of its principal.
- Inflated Value - Sometimes, the defense will overstate the
value of a negotiated structured settlement. As a result, the
plaintiff winds up with much less than was agreed upon.
Plaintiffs should compare the fees and commissions charged for
similar settlement packages by a variety of insurance companies
to make sure that they're getting full value.
- Conflict of Interest - There have been situations where the
plaintiff's attorney has referred the client to a particular
financial planner to set up a structured settlement, without
disclosing he would receive a referral fee. In other cases, the
plaintiff's lawyer has set up a structured settlement on behalf
of a client without revealing the annuities are being purchased
from his own insurance business. Plaintiffs should know what
financial interest their lawyer may have in relation to any
financial services being provided or recommended.
- Using Multiple Insurance Companies - It's advisable to
purchase annuities for a structured settlement from several
different companies. This offers protection in the event a
company that issued annuities for a settlement package goes into
bankruptcy and defaults.
Benefits of Selling A Settlement A structured settlement is
specifically designed to meet the needs of the plaintiff at the
time it's created. But what happens if the installment
arrangement no longer works for the individual? If you need cash
for a large purchase or other expenses, consider selling your
structured settlement. Many companies can purchase all or part
of your remaining periodic settlement payments for one lump sum.
This can boost your cash flow by providing funds you can use
immediately to buy a home, pay college tuition, invest in a
business or pay off debt.
If you're considering cashing out your structured settlement,
contact your attorney first. Depending on the state you live in,
you may have to go to court to get approval for the buyout.
About two thirds of states have laws that limit the sale of
structured settlements, according to the NSSTA. Tax-free
structured settlements are also subject to federal restrictions
on their sale to a third party, and some insurance companies
won't assign or transfer annuities to third parties.
When selling your structure settlement, check with multiple
companies to make sure that you get the highest payoff. Also, be
sure the company buying your settlement is reputable and
well-established. And keep in mind that if the deal sounds too
good to be true, it probably is.
About the author:
David Springer is a consultant for Sovereign Funding Group.
Sovereign Funding Group is an experienced, reputable company
that offers convenient, no-risk services to help you with the
selling of your deferred payments and business financing
including structured
settlements.
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| National Structured Settlements Trade Association (NSSTA) |
| Provides structured settlements using periodic payments to resolve claims. |
| www.nssta.com |
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| Structured Settlements |
| Setting up structured settlements for personal injury claims. |
| ilf.hartfordlife.com |
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| Structured Settlements, Structured Annuity, Structured Settlement ... |
| Full-service plaintiff structured settlement firm since 1986, providing services and strategies for personal injury lawyers and clients during the ... |
| www.structuredsettlements.org |
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| Structured Settlements | Annuity Purchasers |
| Structured Settlement Buyers. Purchasers specializing in structured settlements and lottery winnings. Site contains attorney, broker and investor ... |
| www.ppicash.com |
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| Structured Settlement Cash for Structured Settlement Annuity ... |
| Annuity Transfers Homepage - Buyer of Structured Settlements · Home | Sell Your Payments | Brokers | Investors | Testimonials ... |
| www.annuitytransfers.com |
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| EPS Structured Settlements Group: A Structured Settlements Company ... |
| EPS Settlements Group is located in Denver, Colorado and is a founder of the structured settlements industry. |
| www.epssettlements.com |
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| Mckellar :: Structured Settlements |
| News. ... Skip Intro Always >> |
| www.mckellar.com |
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| The Structured Settlement - What You Need To Know |
| About two thirds of states have enacted laws which restict the sale of structured settlements, and tax-free structured settlements are also subject to ... |
| www.expertlaw.com |
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| Settlement Capital Corporation - sell structured settlements,sell ... |
| Direct purchaser of structured settlements and other annuities. |
| www.setcap.com |
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| John Hancock Insurance and Financial Services :: Explore Our ... |
| A structured settlements annuity provides injury victims or the victim's ... John Hancock Structured Settlements and Attorney Fee Annuities are just two ... |
| www.johnhancock.com |
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| Structured Settlements - Prudential Financial |
| Your company may become liable to pay a settlement as the result of a legal proceeding. A Structured Settlement Annuity provides ongoing periodic payments ... |
| www.prudential.com |
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| Finance - Structured-Settlements Ezine Articles |
| EzineArticles.com allows ezine or email list publishers to upload or download free expert content that can be used within email newsletters or websites. |
| ezinearticles.com |
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| Understanding Structured Settlements: A Novice's Guide to the ... |
| Learn what a Structured Settlement is in plain English. Find Structured Settlements company, payments, broker, annuity and loan info. |
| www.noendpress.com |
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| structured settlements, personal injury, annuity, disability, accident |
| Structured Settlements allow income to be spread over time, which is safer ... Structured settlements are often ideal under the following circumstances: ... |
| www.structuredsettlementhelp.com |
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| Structured settlement - Wikipedia, the free encyclopedia |
| Structured settlements were first utilized in Canada and the United States ... Structured settlements are now part of the statutory tort law of several ... |
| en.wikipedia.org |
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| Structured Settlement vs. Lump sum - What to do? |
| More and more claimants are choosing structured settlements. ... Most structured settlements come in the form of an annuity, which is sold by a third party, ... |
| injury.freeadvice.com |
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| Welcome to The Halpern Group, experts in structured settlements ... |
| Offers structured settlements, consulting and negotiation services to attorneys representing injured clients. |
| www.halperngroup.com |
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| Structured Settlements Leader J.G. Wentworth, JG Wentworth ... |
| Structured Settlements Leader JG Wentworth, JG Wentworth Settlement Funding - More than 25000 individuals have come to JG Wentworth to finance their dreams ... |
| www.jgwfunding.com |
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| DOG BITE LAW - Structured Settlements |
| For those reasons, changes were made to the Internal Revenue Code that enable knowledgeable attorneys to create "structured settlements." ... |
| www.dogbitelaw.com |
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| Structured Settlements Law – Lawyers, Attorneys & Free Legal ... |
| I am confused by the number of internet sites that plug offers of structured settlements, sale of structured settlement annuities, and attorneys who offer ... |
| injury-law.freeadvice.com |
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