How Structured Settlements are Paid

Establishing a Plan

Structured settlements are paid to recipients in bodily injury claims or law suits. The party who is obligated to make payments typically will buy an annuity from an insurance company that provides life insurance products or they will assign the obligation to a third party who will buy an annuity. In turn, the payments for a structured settlement are made at specific periods and are set up in one of a number of ways.

Payments can be made Per Annum

For example, some settlements are paid on an annual basis. Therefore, payments are established for a set number of years and payments are made once per annum. Other payments are designed to keep pace with inflation or the general state of the economy. Therefore, they will vary, depending on the financial climate.

Payments can be Made Monthly Too

Payments can also be made monthly and be tied to a financial index, thereby causing them to fluctuate over the progression of time. Settlements are established as well that take into account the future care or housing costs of the payee and, again, can differ over the period the settlement contract is in force.

A Lump Sum Payment

In some cases, recipients of structured settlements may opt to have a lump sum payment, especially if they have medical bills they can no longer meet, wish to pay off their mortgage, or find they are at a risk of foreclosing on their property. In such circumstances, the periodic payout is not sufficient enough to handle some of their other financial obligations.

Structured Settlement Payments are free of any Tax Liability

As there are a number of companies that buy structured settlements, it’s important to read the terms of their contracts before making a commitment. Make sure, if you do choose to cash out, that you are working with a firm that won’t take the lion’s share of your settlement. Remember, your money is tax-free when you receive payments, even on earned income. However, any interest or income you earn on a lump sum payment loses this special benefit.

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