How Do Structured Settlements Work?

A structured settlement has been proved over time to be a great solution for the needs of personal injury claimants. Claims professionals, plaintiff attorneys, judges and defense attorneys advocate the use of structured settlements because they most effectively meet a claimant's needs for security, and provide more financial benefits over time than a single, lump sum settlement because of applicable tax breaks available through the purchase of fixed annuity products or US Treasury Securities.

Structured Settlement Defined: A structured settlement is a way to compensate the victim of an injury claim or the winner of a large insurance settlement through the use of periodic payments tailored to the victim's needs (as opposed to a single lump sum settlement). A structured settlement can be paid in regular installments either for a fixed period or for the lifetime of the claimant. Because it is tailor-made for individual cases, the structure may also include some immediate payment to cover special damages. The payment is usually made through purchase of an annuity from a Life Insurance Company. Structured settlement benefits are tax-free under IRC 104 (a)(2) code.