Structured Settlement FAQs

Structured settlements involve the plaintiff in a civil case receiving their settlement in payment form periodically over an agreed amount of time. Structured settlements can be a confusing concept to grasp. If you have questions about structured settlements, you’re not alone. Browse frequently asked questions below.

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    Lindsey Crossmier

    Lindsey Crossmier

    Financial Writer

    Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers annuities, structured settlements and other personal finance topics for

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    Savannah Pittle

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    Savannah Pittle is an accomplished writer, editor and content marketer. She joined as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

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    Timothy Li, MBA, has dedicated his career to increasing profitability for his clients, including Fortune 500 companies. Timothy currently serves as a business finance manager where he researches ways to increase profitability within the supply chain, logistics and sales departments.

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  • Updated: October 20, 2023
  • 5 min read time
  • This page features 6 Cited Research Articles

Structured Settlement Basics

What Is a Structured Settlement?

A structured settlement is a legal settlement paid out as an annuity instead of a lump sum. Cases that commonly result in structured settlements include:
Personal injury
Workers’ compensation
Medical malpractice
wrongful death

What Is the Purpose of a Structured Settlement?

Typically, structured settlements are used to guarantee a stream of tax-free payments for an injured party after a civil lawsuit. These payments can cover medical bills, long-term care or other needs. Opting for a structured settlement over a lump sum helps ensure long-term financial stability for the recipient.

Which Parties Are Involved in a Structured Settlement Case?

Three parties are involved in a structured settlement case:

• The plaintiff is the individual who suffered harm.
• The defendant is responsible for the harm.
• The consultant ensures the terms of the structured settlement agreement are fair.

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How Structured Settlements Work

Do You Receive Regular Payments From a Structured Settlement?

Yes, a structured settlement provides regular payments over a specified period. The frequency and amount of payments are determined during the settlement negotiation process.

How Are Structured Settlements Paid Out?

Structured settlement payout options offer ample flexibility. During settlement negotiation, you can determine your payout structure based on your specific needs. For example, payments can begin immediately or at a later date. You can also negotiate the frequency of payments, each payment value and additional death benefits.

What Are Some Benefits of Structured Settlements?

Structured settlements offer guaranteed income and protection against impulse spending. You also retain the option to sell your structured settlement in the future should you have an urgent financial need. 

What Are Some Drawbacks of Structured Settlements?

Potential downsides of structured settlements center on their inability to be altered after funding and the inherent lack of access to cash. Once your settlement terms are set, you cannot change them. And having locked-in, scheduled payments means you cannot access the settlement’s value. 

What Happens to a Structured Settlement During a Divorce?

How a structured settlement is handled during a divorce depends on the approach your state takes to asset division. States divide assets according to either ‘equitable distribution’ or ‘community property.’

If you live in a state with equitable distribution, and you received the settlement before you were married, it is likely you will keep the settlement. But if you live in a ‘community property’ state, then anything either spouse owned before and during the marriage is considered property of the union and can be subject to division.

In any state, the division of assets doesn’t mean the settlement check itself gets divided. Typically, the spouse who doesn’t keep the settlement will get a different asset to balance out the overall division of assets. If you have a settlement and are facing divorce, you may want to hire a lawyer or mediator with experience handling complex assets.

A relative received a structured settlement after a car accident. When weighing the pros and cons of keeping the settlement versus selling the settlement, she was not aware of other options besides keeping the settlement. My relative, like many others who receive a structured settlement, was not aware of all options that were available with a structured settlement.

Selling Your Structured Settlement

Do You Need Court Approval To Sell Your Structured Settlement?

Yes. The United States government passed several laws, including the Periodic Payment Settlement Act of 1982, that mandate court approval for the sale process. Court approval laws are still being updated today to provide further protection.

Why Is Court Approval Necessary?

Before the structured settlement industry was regulated, some factoring companies took advantage of people who were not informed of the nuances of selling their structured settlements. Mandating court approval ensures the sale is in the consumer’s best interest and that a factoring company is not taking advantage of the person’s ignorance. 

Do I Have To Sell All of My Payments?

No. There are several options for selling your structured settlement payments, including selling just some of them. This is called a partial sale. Each person’s situation is unique, and regardless of how much of your settlement you want to sell, a judge has to approve the sale. You should discuss your options with your accountant or attorney before choosing how much to sell.

Will I Be Taxed on the Sale of My Structured Settlement?

Most times, no. Because of the Periodic Payment Settlement Act, the amount you receive from a sale to a purchasing company is not taxable. However, some exceptions apply. 

Will I Be Charged an Interest Rate if I Sell My Payments?

Factoring companies typically charge a discount rate between 9% to 18% on the sale of structured settlement payments. 

How Long Does It Take To Sell My Payments?

It generally takes 45 to 90 days to sell your structured settlement. However, the availability of the courts and errors in your documentation could delay the sale.

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Pre-Settlement Funding for Structured Settlements

What Is Pre-Settlement Funding?

Pre-settlement funding gives you access to funds before you’ve finalized your lawsuit. You can apply for pre-settlement funding from a firm that specializes in granting cash advances to plaintiffs in pending lawsuits. Plaintiffs often use this money toward court costs.

How Much Money Can You Get With Pre-Settlement Funding?

If approved, you can receive between 10% to 20% of the amount you’re expected to win from your case. 

Is Pre-Settlement Funding Dependent on My Credit Score?

No, most pre-settlement funding companies don’t check your credit score when checking to see if you qualify.

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Inheriting a Structured Settlement

Can a Structured Settlement Be Inherited?

Structured settlements are generally paid through annuities held and administered by insurance companies. The person awarded the settlement can designate a beneficiary to receive the payments if they die before the payout is finished.

Whether a structured settlement can be inherited depends on whether the annuity contract specifies life contingent payments or guaranteed payments.

How Do Life Contingent Payments Work?

Life contingent payments last only through the lifetime of the person awarded the settlement. If that person dies, the insurance company does not send future payments to their beneficiaries.

How Do You Inherit a Structured Settlement if You’re the Beneficiary?

If you are the named beneficiary of a loved one’s structured settlement and they have passed away, submit a claim to the annuity issuer so the rest of the agreed payments can be disbursed to you. The money from a qualified structured settlement will continue to be exempt from income taxes even after it has been inherited.

What Is a Commutation Rider?

A structured settlement may have a commutation rider included in its contract. This means all or some of the future payments are converted into a lump sum of cash for the beneficiary when the settlement is inherited. A commutation rider can simplify inheritance. Without a commutation rider, a beneficiary must go through the process of selling their future payments to get access to cash sooner than scheduled.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: October 20, 2023