A complete guide to understanding structured settlements

Structured settlements are a form of annuity in which an injury victim is paid his compensation through periodic payments rather than in a lump sum amount. Though not absolutely compulsory, structured settlements have been encouraged by the US congress ever since the year 1982. In the case of structured settlements, the victim is paid his compensation in a stream of payments which are tax free and designed in a manner to meet medical expenses as well as basic survival needs.

The need for structured payment- Why and how it arose?

In most cases of injury settlements, the compensation is paid to the victim in the form of a large lump sum amount. Since most families do not have the expertise to manage this kind of a huge amount, the money is squandered and the family is left in a very difficult financial position. This leads to a number of cases of dissipation. Dissipation essentially means that the person who is taking the responsibility of dissipating funds has the intention to cover a lifetime of medical care and hence, runs the risk of losing his or her independence as well as medical care. Most of such people end up asking for public assistance and hence become a burden on the tax payer.

In order to take care of this problem, The Congress passed the Periodic Payment Settlement Act which recognized on a formal basis the payment of compensation in the form of structured settlements in physical injury cases.

The reasons why one must consider structured settlements as way to receive compensation

There are many advantages of structured settlements. However, the following are the main reasons why one must chose structured settlements as the means to receive compensation:

  1. You are relieved of managing the money received in the form of compensation
  2. One can meet a very long term rehabilitation cost out of the payments received from the structured settlements
  3. Without any cost you are given a long term financial security
  4. It is absolutely tax free
  5. One can arrange it to be invested on his or her behalf

The cases where one can get compensation in the form of structured settlements

Though mainly associated with physical injury cases, structured payments are not strictly limited to them. One can also get his compensation structured in punitive damage case, divorce case, employment case, law firm break up case, property damages as well as lottery prize. The only point of difference is that the payments received will either be taxable over time or be tax free in some of the cases.

The need for going to a structured specialist to handle your structured settlement

One of the most important reasons why you must only go to a specialist to get your structured settlement handles is that the design and focus of a structured settlement is such that if handled by a non-licensed, non-professional person, the money can be completely misspent. Hence, it is always advised to go an appointed and licensed structured settlement specialist to handle any transaction of this nature.

The flexibility associated with the structured settlements

Structured settlements have a very flexible structure and they can be made to be designed for any need whatsoever. The simplest way is to set up a structure where you receive an equal sum as payment over a period of time which can be ten years or twenty years. Again, if you have to meet some additional cost every two or three years, you can get your compensation to be structured in a manner that you receive a large sum of money every two or three years as the need may be.  This serves to be the most important advantage of using a structured settlement as the flexibility makes things much easier for the families.

The financial security even after you are no more

Structured settlements are designed in a manner that even if you are dead your beneficiary or your estate will continue to receive the specified amount of money. This means that you are assured of the fact that your family will be taken care of even when you pass away. There are very few financial tools in the world that guarantee one a security like that. Certainly, this is one more important feature as to why structured settlements are becoming popular more and more.

The most important feature of structured settlements – Tax saving

When one makes use of structured settlements he saves a tax of up to thirty five percent which he otherwise would have had to pay on interest income. This means more money received for treating the injury as well as living one’s life in a lavish manner. Structured settlements not only provide you with compensation but also give you a way to save the tax on it.

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