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What are Structured Settlements?
If you have been given a structured settlement, you need to understand your rights under the law; you do not always have to live with the structure.
What is a Structured Settlement?
There are times when an individual has a large claim against an organization, and the organization will be turning that claim over to its insurance provider. Typical examples of these types of claims are injuries (or death) which are job-related. In this instance, the company is liable for damages, and the insurance company begins the negotiations with the claimants (the injured party or his/her survivors). Often, these cases end up in court, because the injured or the survivors employ the services of an attorney to protect their interests. At some point, the case is closed, and the claimant may agree to receive a structured settlement as opposed to a lump sum disbursement. A structured settlement provides for regular payments to the claimant over a period of time, and is usually funded by the purchase of an annuity for the purpose of disbursement. Generally, they are not taxed, although any recipient of one should check with a tax attorney.
Pros of Structured Settlements
- A young mother whose husband has been permanently disabled or killed can rely on regular income throughout child-rearing years.
- a permanently disabled individual will know that regular income will provide for essentials and medical care which may occur in the future
- A young child may receive payments every several years, providing income for college expenses and for the beginning of adult life.
- 4. Individuals who are not great money-managers have the security of knowing that income will come in on a regular basis and will not be tempted to spend it all irresponsibly. As well, the generous person will not be lured into helping friends and relatives when the large lump sum is received.
Cons of Structured Settlements
Some individuals prefer to manage their own funds and do a pretty good job of it. In this instance, the wise investor can see his lump sum disbursement grow at a much better rate than the annuity. A structured settlement is perhaps not beneficial for older claimants, because of life expectancy. Senior citizens are probably better off taking the lump sum and enjoying their lives with luxuries and vacations. Likewise, the permanently disabled claimant may face a much shortened life expectancy due to the nature of the injury. A structured settlement may not be in his best interest.
In recent years, a number of financial companies and law firms have gone into the business of purchasing structured settlements from recipients. This can be a benefit for the individual who finds himself in dire financial straits and needs immediate cash flow to live or meet debt obligations. The company or attorney generally offers much less than the recipient would get by taking the structured payments, and it is wise to shop around before deciding to sell the settlement. Such purchases are either banned or severely restricted in some states, so the law should be researched.