Structured Settlements and How Do They Work?

Structured Settlements and How Do They Work?

Structured Settlements

Structured settlements are designed to compensate people after a civil lawsuit outcome. For instance, people who get involved in car accidents and get seriously injured may ask for compensation from the driver who caused the accident. If the court rules in their favor, they may get compensated for the accident or injury. Instead of making lumpsum payments, the accused can negotiate a structured settlement. This way, they can pay for compensation comfortably. It is essential to understand how structure settlements work if you are the plaintiff. Before you decide on handling a considerable amount of money that you acquire all of a sudden, contact your financial advisor to help you manage it.

What Are Structured Settlements?

Structured settlements are payment arrangements resulting from civil lawsuits where a plaintiff sues the defendant for compensation. A structured settlement makes it easy for the defendant to pay the plaintiff without making a lump sum of money at go. Since structured settlements are voluntary, the two parties must agree to the terms. The two parties can work together and agree on making payments, or the court may order the structured settlement. The agreement may occur after entering a judgment, but a defendant may also breach the structured settlement’s subject to prevent the civil case from going to trial. Such a compensation arrangement is available in various situations, although they are used in cases where plaintiffs suffer any debilitating injury.

A structured settlement offers a tax-free payment to an injury victim or the family. The money is usually used to pay for long-term medical expenses or replace lost income if the injured party can’t work or has succumbed to the injuries.

What Is the Agreement Process of a Structured Settlement?

  1. A plaintiff will sue the defendant seeking compensation for injuries, illness, or death caused by the defendant in severe cases. The defendant will then agree to offer the plaintiff a lump sum of money through a structured settlement to prevent the lawsuit from the trial. Once the case goes to trial and the court rules in favor of the plaintiff, the defendant will be asked to set up the settlement.
  2. After the defendant agrees to pay the plaintiff, they work with a qualified assignee who will help them determine the structured settlement agreement terms. Some of the things he will help them with include how much to be paid after a particular time, how long the payment process will take or whether the defendant should increase the payout at particular times. A defendant will provide cash for that qualified assignee for purchasing an annuity for the plaintiff.
  3. The assignee buys an annuity from a life insurance agency. The annuity contract will be set to match the need for both parties’ settlement. After selecting the annuity terms, they cannot change them.
  4. The life insurance agency will pay the plaintiff an agreed amount of money over time based on the annuity contract terms.

Advantages Of Structured Settlements

A structured settlement agreement can be advantageous to the plaintiff as it is tax-free compensation for any injuries caused. Some of the benefits for a structured settlement include:

  • The assignee can tailor the annuity payments to fit the plaintiff’s lifestyle and needs.
  • The agreement allows the parties to negotiate settlement terms allowing lump payouts after some time or increasing the benefits over time.
  • A structured payment can help manage recurring medical expenses and other injury-related costs.
  • Structured settlements payments are guaranteed.

Disadvantages Of Structured Settlements

  • You may be taxed for any punitive damages you get paid for outside a structured settlement.
  • You can not change the terms of a structured settlement after finalizing; therefore, flexibility is limited if the original payment terms prove to be unsuitable.