Structured Settlements Introduction
A structured settlement is when a plaintiff settles a lawsuit for a significant amount of money. Instead of taking a lump sum of money, the defendant arranges for a structured settlement through the purchase an annuity through a insurance company or bank. The plaintiff and his or her attorney determine the payment schedule, amount and terms according to the plaintiff’s needs.
Structured Settlements Provide Financial Protection
According to the National Structured Settlement Trade Association, structured settlements provide individuals with U.S. Treasury guaranteed tax-free income regardless of the economy and the market.
Individuals with structured settlements enjoy a sense of security because structured settlements are held in annuities, which are funded by safe assets, usually by high rated insurance companies. Additionally, all companies issuing structured settlement annuities must make provisions for additional funds well beyond what is required to meet the annuity obligations.
Structured Settlement Considerations
Although it may sound fairly cut and dry, individuals have several considerations to take under advisement when creating a structured settlement:
Who to Contact about a Structured Settlement
Reputable insurance agencies and banks that offer wealth management services are the safest choices when seeking an annuity for a structured settlement. Most insurance companies offer a variety of annuity products including fixed, variable, modified guaranteed and immediate income.
When to Consider a Structured Settlement
Typically, individuals will decide if a structured settlement is a good match when both parties reach a financial agreement. At that time, attorneys on both sides will negotiate the terms and conditions based on their clients’ needs to arrive at a mutually agreeable settlement.
Should the plaintiff request that a structured settlement be made, the defendant defers the matter to be handled by a third party, typically the insurance company or bank, to arrange for payments through an annuity. For people that have structured settlements and are interested in selling because they’ve fallen behind on credit card payments and are thinking about using their structured settlement to pay off debt it’s advisable to consider getting debt relief that will reduce credit card principal balance and minimize monthly payments.
How to Create a Structured Settlement
Individuals seeking to create a structured settlement should have an idea of the settlement terms and conditions. The best way to approach the matter is to create an action plan with an attorney before meeting with the insurance or financial agent from the structured settlement company.
When building an action plan, individuals should consider the reason they received the cash award and how the money impacts their care or rehabilitation. It’s also important to understand that structured settlement payments are extremely flexible—every payment amount does not have to be the same or delivered on the same date. For example, if the individual loses a leg in an accident and will need a replacement limb or additional surgery years down the road, the individual can make provisions in the payment terms to accommodate the financial need.
Structured Settlement Drawbacks
Although structured settlements afford plenty of advantages to individuals seeking financial security and money management, there are a few disadvantages to creating a structured settlement.
The main drawback is that once the individual sets the terms and conditions, there’s no going back. No aspect can be changed at any time. For those looking to sell or transfer their structured settlement it’s important to consider other options for immediate cash flow. For people that own a home the first step is to see if your current home equity can sustain their financial need. If there is equity home refinance would be a preferred option.
That’s why it’s extremely important to give every aspect of the structured settlement creation insightful thought before making decisions. Also, hiring an attorney to assist with the process is imperative to thoughtful decision making and financial planning.
Another disadvantage is that structured settlements don’t pay interest. Some accounts, such as money markets or certificates garner interest, however annuities do not.