The Advantages and Disadvantages of Structured Settlement Annuities

The following is a guest post. Enjoy!

Many judges across the United States now accept structured settlements options when claimants win their legal cases in a court of law. Typically, structured settlement annuities are provided to individuals that have been injured in a job-related accident, or as a result of medical malpractice. These structured settlements often serve as an ideal solution for the claimant to provide them with the money they need to survive. However, it comes with its own inherent problems.

Accepting a Structured Settlement

Usually, the claimant would rather take a large sum of cash as a way to settle the lawsuit. However, many court systems across the nation believe that providing a structured settlement annuity with monthly installments work to the benefit of the lawsuit claimant. The annuity is structured to produce ongoing monthly payments (or annual payments) as a way to ensure all the financial needs of the individual are covered in future years. Additionally, some annuities are automatically transferred to the heirs of the claimant in the event that they die before the total amount is paid off.

Structured settlements can be issued two different ways. The first type of annuity is a traditional method where yearly or monthly installments are paid to the claimant directly by the defendant that lost the lawsuit case. Usually, the monthly payment is determined by the total amount due, divided by the agreed-upon number of years of payments plus interest.

The other available structured settlement is an annuity that can be purchased through annuity or life insurance companies. Typically, the court orders that the defendant will need to purchase the annuity and redirect the monthly cash payouts to the beneficiary – the claimant in the case. These types of annuities are purchased for a reduced rate. The defendant provides a lump sum to the annuity company in an amount large enough to start paying out on the policy immediately.

Structured Settlement Time Frames

Typically, the court system will order that the annuity will pay out each month or year for the remainder of the claimant’s life. However, some annuities are designed to payout for a pre-determined amount of years. Other annuities can be set to meet the rate of inflation, where the payments are adjusted upwards for inflation, over the course of the remaining payouts.

The Best Solution

While there are certain advantages for obtaining a structured settlement annuity after winning a lawsuit or settling out of court, there are disadvantages too. The structured settlement can offer a high level of financial security and a continuous steady income for years.

However, many times, the amount of payments are not high enough to cover extensive medical bills, increasing rent, and making adjustments for costs of living. As a result, many individuals are choosing to sell the remainder of their structured settlement annuities for cash. The amount is often sold to a reputable third-party company that offers a specific amount for all or a portion of the structured settlement in exchange for a lump sum.

The entire process of selling a structured settlement for a lump sum needs to go through the court system, and be approved by the judge.

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About the Author Jacob A Irwin

Hi folks! My name is Jacob. I am the owner and operator of My Personal Finance Journey. I started this blog in January of 2010 and have enjoyed the journey ever since. Since finishing up graduate school in Virginia in 2014, I have been working in biopharmaceutical development in Colorado. You can read more about me and this site here​. Please contact me if you have any questions!

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