Structured settlement annuity payments are typically a judgment or settlement of money that is paid off over a period of months or years. Often, victims of personal injury or other cases in which liability is an issue, the offending person, company or entity will offer a settlement in the form of annuity payments.
Structured settlements have been known to have both good and bad elements, depending upon the situation.
A structured settlement is different from a case in which the victim receives 100% of the settlement in cash. In this case, the payments may not conclude for several years or even decades. This allows the victim to stretch out their settlement to cover medical, living and other costs in the future, but it does not help victims who need a large sum of cash right away.
The problem is that many people, when given a large lump sum of cash, will squander it in just a few years, with nothing left over to ensure the quality of their future. This is especially true in cases where a child is injured, and the parents of the child are afforded the settlement. The money is meant to care for the child in the future, including medical treatment, but parents do not always save the money, leaving the child with nothing upon which to fall back.
On the other hand, many people are experienced and savvy investors who are fully capable of handling a lump sum payment. They may have ideas for stocks, mutual funds or other investments that could further affect the quality of their lives and increase the amount of money they have in the future. In this case, a lump sum settlement is more beneficial, and should be chosen over structured annuity payments.
In some cases, the victim can choose which type of settlement they prefer – a lump sum or annuity payments. In this case, the individual or family must decide which is better for their long-term well-being, or for that of the injured party. This can be a difficult decision, and may require the counseling of a professional financial adviser or other qualified individual. Several factors must be taken into consideration:
| 1. Ongoing medical treatment and expenses 2. Rehabilitation expenses 3. College tuition (if a child is involved) 4. Retirement funds 5. Mortgage, rent or other living costs 6. Replacement or supplemental income 7. Life expectancy |
All of these factors should contribute to whether or not an annuity payment will be beneficial to the recipient of the settlement.
If, however, structured annuity payments are all that is offered, there are other options the injured party can choose in order to receive a lump sum cash award. In this case, there are financial institutions which will “loan” the full amount of the settlement and will receive the annuity payment for the victim.
Although there are fees and interest rates involved, this may be the only solution possible for the victim. If this is the case, he or she should fully research the background of the lender and make sure that the company is legitimate and stable. It is also advisable to have an attorney present to read over the contract and to spot any elusive jargon that might eventually cause harm to the victim.
To help make your decision about structured annuity payments, here are a few frequently asked questions:
Q: What taxes are involved with a structured annuity settlement?
A: As long as the settlement was won based on an injury or illness, no taxes are required on the settlement. However, money made from the investment of those funds are taxable, such as in the event of a money market account, stocks, bonds or other investments.
Q: Can I change the settlement schedule later?
A: Structured settlements are “set in stone” from the day the contract is signed. Unless both parties develop a new contract – which probably will never happen – an annuity schedule will remain as it was the day it began.
Q: Are my payments guaranteed?
A: A structured settlement is guaranteed by the company or entity who is making the payments.