Structured Settlement Payout Options

Structured Settlement Payout Options

How you choose to get your structured settlement payout can affect taxes and your finances in the future. Learn more.

How Are Structured Settlements Paid Out?

In civil lawsuits, structured settlements are commonly used as a resolution when both parties agree to the settlement terms.

Rather than receiving a single lump-sum payment, the claimant chooses to receive periodic payments over time. These can cover various expenses, such as medical bills and long-term care, and provide a guaranteed income for the injured party or their beneficiaries as outlined in the structured settlement agreement.

The General Process of Structured Settlement Payouts

1.An injury occurs

2.Lawsuit is filed

3.Settlement is reached

The General Process of Structured Settlement Payouts

4. Defendant is released from liability

5. Defendant purchases an annuity to fund the settlement

6. Insurance company makes periodic payments to the defendant

The Role of Annuities

By holding the funds in an annuity, the settlement funds are safeguarded. This offers long-term financial security and the ability to customize the annuity to meet specific needs and future obligations.

The timing and duration of payments can be adjusted with options for immediate or delayed payments, and the choice between a life-only annuity for lifelong payments or a period certain annuity for a specified timeframe.

Further elements such as payment frequency, distribution amounts and death benefits can be negotiated as part of the annuity contract.

What Are Your Payout Options?

* Temporary Life Annuity

Guarantees payments for as long as the recipient is alive, but won't pay out to beneficiaries.

*Joint and Survivor Annuity

Issues payments for as long as the recipient is alive, and continues throughout the lives of the beneficiaries.

* Percentage Increase and Step Annuities

Step annuities incorporate gradual increases in the payment amounts over a fixed period of time or the recipient's lifetime.

*Percentage increase annuities gradually increase payments by a fixed percentage.

* Deferred Lump Sum Settlements

Large payments scheduled at major milestones in the recipient's life

What To Consider When Choosing Your Payout Type

When deciding on a payout option for your structured settlement, important considerations include the tax implications, current and future financial needs, and your money management skills.

Tax laws make compensatory damages in structured settlements tax-free, and your financial needs and ability to manage money will guide the negotiation process.

Additional factors such as life expectancy and health may affect the structure of the settlement, including payment amounts and beneficiaries.