What is a structured settlement?
A structured settlement is an alternative to an all-cash settlement in a personal injury case. One portion of the settlement consists of an upfront lump sum payment to satisfy immediate cash needs such as attorney fees, liens, and cash to the plaintiff. The remaining portion of the settlement is used to fund future periodic payments.

A structured settlement is a secure plan that eliminates the risks associated with financial markets. The goal of a structured settlement is not capital appreciation, but rather to provide absolute income protection so that a claimant never runs out of money.

Why did structured settlements come into being?
Studies showed that 90% of all legal awards exceeding $50,000 were dissipated within five years of being made. Structured settlements are simply good public policy. In 1982, Congress recognized the unique financial needs of injured individuals and passed the Periodic Payment Settlement Act, which formally recognized and encouraged the use of structured settlement annuities (and protected them from taxes). Structured settlements protect injured individuals and ensure they receive the necessary financial help without risk of losing their money.

Who establishes a structured settlement?
The defendant or its insurer must arrange the structured settlement in order for the settlement to comply with the Internal Revenue Code. The claimant cannot establish his own structured settlement or own the annuity contract that funds the periodic payments.

How is a structured settlement commonly funded?
A structured settlement is typically funded by the purchase of an annuity contract from a highly-rated legal reserve life insurance company. The defendant or its insurer pays the specified amount of money to the life insurance company, which in turn promises to pay the agreed-to periodic payments. For further diversification, sometimes the structured settlements are funded through more than one life insurance company.

How does a claimant know what his/her periodic payments will be?
The structured settlement broker surveys the marketplace in search of the most competitive rates for funding annuities. The result of the survey is illustrated and presented during the negotiations.

If agreement is reached, the annuity arrangement is "locked in" with the issuer. The payments can be tailor-made to match the anticipated future needs of the claimant. If a particular benefit package is not desirable, the claimant (or the claimant’s attorney) can request different proposals. Once a benefit package is created that is agreeable to both parties in the suit, the annuity can be funded.

When must a structured settlement be arranged?
A structured settlement must be arranged and agreed to at the time of settlement because the details of the periodic payments must be included in the settlement agreement and court documents. A claimant cannot receive settlement money and then decide to use a structured settlement annuity in order to benefit from its tax and other advantages.