Structured Settlement Insurance

Structured Settlement Insurance

A structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum.

How Do Structured Settlements Work?

Structured settlements work by providing periodic payments over an agreed schedule. They offer a predictable and steady income stream as an alternative to a lump-sum payment. Understanding how structured settlements work can help you make informed decisions about receiving or selling these types of payments.

Understanding Structured Settlements

Structured settlements are a series of negotiated financial or insurance arrangements. These are typically the result of a personal injury, wrongful death lawsuit or another legal claim. The plaintiff agrees to resolve a claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, rather than as a single lump sum.

Typically, annuities fund all Structured settlements. The defendant or their insurance company buys this annuity from a life insurance company. The annuity's design ensures the plaintiff receives regular, scheduled payments over a set period or for their lifetime. Thus, the annuity serves as a secure and reliable source of funding for the structured settlement.

In some instances, US Treasury securities fund structured settlements. Here, a trust holds the Treasury securities, generating regular interest payments. The plaintiff then receives these payments according to the structured settlement terms. This less common method usually applies when a government entity is the defendant.

Regardless of the funding source, the structured settlement's objective remains to provide the plaintiff with a consistent income stream over a specified period.

The Structured Settlement Agreement Process

Negotiating a settlement happens at the resolution of civil cases when structured settlements are involved. This process requires the collaboration of several parties: the plaintiff, the defendant, a consultant with expertise in such cases and a life insurance company.

The general process of negotiating a Structured settlement agreement involves several steps. First, the plaintiff files a lawsuit seeking compensation against the defendant. Often, the defendant opts for a structured settlement to prevent the lawsuit from going to trial. If the case does proceed to trial and the judge rules in favor of the plaintiff, the defendant may then be compelled to establish a settlement.

The defendant and the plaintiff then collaborate with a qualified assignee to establish the terms of the structured settlement agreement. This includes determining the amount of regular payments, the duration of these payments and whether they should increase at certain times. The defendant provides the funds for the qualified assignee to purchase an annuity for the plaintiff.

The qualified assignee next buys an annuity from a life insurance company, setting up the annuity contract to meet the settlement needs. Once the terms of the annuity are established, they cannot be altered. An immediate lump sum may also be set aside to cover attorney fees or to fund a specified trust.

Finally, the life insurance company disburses a series of payments to the plaintiff over time according to the terms of the annuity contract. The annuity earns interest to protect its value from inflation. The only way for the plaintiff to receive cash from the settlement ahead of schedule is to sell the right to future payments on the secondary market.