A structured settlement is a negotiated financial/insurance arrangement through which the claimant agrees to resolve, personal injury. claim by receiving part or all of a settlement in the form of periodic payments on a regular basis for specific period of time, rather than all altogether (lump sum). A settlement may allow the parties to a lawsuit to reduce legal and other costs by avoiding trial. Structured settlements are most widely used in the United States rather than in other countries.
Now how can we understand that?
The process of issuing a structured settlement is a complicated one that results simpler, easier solution for someone who either wins a case or are going to get the amount from insurance. Structured settlements are simpler and more preferable way. Many lawsuits result in someone or some company paying money to another to right a wrong doing. Those responsible for the wrong may agree to the settlement on their own, or they may be forced to pay the money when they lose the case in court regarding on their choices. A structured settlement is a stream of payments to a particular person who won or settled a lawsuit or to the family for the injury of their loved ones or to a particular person who has suffered some great loss physically. The defendant funds the settlement.
There are a number of reasons why an individual may receive a structured settlement.
A personal injury case is a civil case where someone who’s been harmed files a lawsuit seeking money from the person believed responsible for the harm. Money in the form of a structured settlement helps recipient pay for medical expenses or other costs.
Most people know about workers’ compensation, which pays workers who get injured on the job while they recover. Payments can be used for medical treatment and wage replacement during periods when injured employees are unable to work and other expenses.
In some unfortunate cases, doctors can do more harm than good. In this instance, injured patients or the families of deceased patients can sue for medical malpractice.
A structured settlement is also a common way to compensate family members who claim loved ones were victims of wrongful deaths. Families may be entitled to receive a stream of tax-free payments, to replace income after a loved one’s death
The plaintiff sues the defendant to seek compensation for an injury, illness or death the defendant caused. Often the defendant agrees to give money to the plaintiff through a structured settlement in order to keep the lawsuit from going to trial. If the case does go to trial and the judge rules in the plaintiff’s favor, the defendant may then be forced to set up a settlement.
The defendant and the plaintiff work with a qualified assignee to determine the terms of the structured settlement agreement — that is, how much the regular payments should be, how long they should continue for, whether they should increase or be supplemented by larger payouts at certain times, and so on. The defendant provides money for the qualified assignee to buy an annuity for the plaintiff.
The qualified assignee purchases an annuity from a life insurance company, setting up the annuity contract to match the settlement needs. Once the terms of the annuity are set, they cannot be changed. An immediate lump sum may also be set aside to cover attorney fees or to fund a specified trust.
The life insurance company pays the plaintiff a series of payments over time, according to the terms of the annuity contract. The annuity earns interest to protect its value from inflation, and the only way for the plaintiff to get cash from the settlement ahead of schedule is to sell the right to future payments on the secondary market.
How does the process work?
If you agree to take the amount as per structured settlement, instead of receiving one large amount from the plaintiff, you will receive periodic payments over the course of a fixed number of years agreed by you. if you win $700,000, your structured settlement might require the defendant to pay you $70,000 on a fixed month for ten years.
You can design a structured settlement so that it provides money when you need it most. Here are a few options. Large initial payment. Say you’ve been unemployed for some time and your bills are mounting. You can design the structured settlement to provide a large initial payment so that you can pay overdue bills, pay off a mortgage, or purchase needed items like a new car. The smaller subsequent payments could then act as a substitute for lost income.
Additional amounts for extraordinary expenses. Some settlements are designed to provide a yearly income, with additional amounts allowed to pay extraordinary expenses like college tuition.
Payments increase over time. Structured settlements can also be designed to step up payments over the years—starting relatively low and ending higher.
Payments decrease over time. Structured settlements can also start high and decrease over time. This might be of benefit if you expect your income to increase over time.
Delayed payments. Some plaintiffs even choose to delay payment of their awards until they reach retirement.
If you elect to receive your lawsuit payout through a structured settlement, you can determine whether to begin to receive the funds immediately or at a later date. Immediate payments can be beneficial if you require medical care, for example, or have lost your source of income. You may decide to postpone the payments until a later time, such as after you retire. During the waiting period, the annuity will grow as it earns interest.
Your attorney will likely have helpful opinions and will negotiate the terms of the settlement on your behalf. Regardless of whether you choose a lump-sum payment or a structured settlement, it is worth your while to consult with a tax professional, accountant, or financial planner to determine how the structure of your award or settlement will help you to maximize your outcome based on your personal circumstances and to achieve your financial goals.