The Settlement Alliance

How Does a Structured Settlement Work?

How Does a Structured Settlement Work?

Aug 8, 2016

A structured settlement is one of the safest, most reliable investments on the market. For claimants involved in personal injury, wrongful death, and workers’ compensation cases, a structured settlement is a valuable tool for financial stability and can help ease the burden of moving forward after a lawsuit.

Simply put, a structured settlement allows the claimant to place all or a portion of their settlement in an annuity, which pays out a stream of guaranteed1 future periodic payments. Per IRS Code § 104(a)(2), the settlement money within the annuity AND any interest accumulated are 100% income tax-free. Growth rates match many traditional investments, or in some cases, exceed them.

This type of arrangement allows the claimant to preserve the settlement money for the long-term so that it can help pay for future medical and income needs. There is a great deal of flexibility when designing the structured settlement: payments can be made on a monthly, quarterly, semi-annual or annual basis, or in the form of a lump sum.

Here’s how a structured settlement works:

  1. Claimant - Agrees to settle the case and gives full release of claim to...
  2. Defendant or Insurance Carrier - Funds the amount chosen to be structured and assigns liability to...
  3. Assignment Company - Purchases the annuity from...
  4. Structured Settlement Carrier - Pays benefits to...
  5. Claimant

Once both parties have agreed to the details of the structured settlement, the claimant gives full release of their claim to the defendant or insurer. The defendant or insurer then pays the amount of funds chosen by the claimant to an assignment company, which assumes liability and purchases the annuity from a structured settlement carrier. The carrier sends the claimant structured settlement payments based on the amounts and timeline selected by the claimant.

For questions regarding structured settlements, contact one of our settlement planners today at 800-464-2500.

We are proud to partner with the highest rated structured settlement providers in the industry:

  • American general Life Companies
  • Berkshire Hathaway Structured Settlements
  • MetLife
  • Mutual of Omaha
  • New York Life
  • Pacific Life
  • Prudential