Structured Settlements Enable the Newly Injured to Live withDignity, Independence, and Freedom from Reliance on Government
Executive SummaryStructured settlements are in wide use today to resolve physical injury claims
Structured settlements have been widely used in the tort area for more than three
decades, and in worker’s compensation for nearly two decades. In a structured
settlement, a voluntary agreement is reached between the parties under which theinjured person receives damages in the form of a stream of periodic payments tailored tohis or her future medical expenses and basic living needs from a well-capitalized,financially-experienced institution.

Structured settlements enable injured persons to live with dignity, free ofreliance on governmentStructured settlements provide a private sector funding alternative to the traditional
taxpayer-financed assistance programs in order to meet the ongoing, long-term
medical and basic living needs of seriously-injured persons and their families. This isdone through an assured stream of payments tailored to their needs.

They enable persons who are injured to live with dignity and financial independence,free of reliance on government programs.

Structured settlements have strong support from the plaintiff's bar, defense bar,judges, and mediators.

With bipartisan support, Congress has adopted special tax rules to encourageuse of structured settlements to provide long-term financial protection to
injured persons and their families

These structured settlement tax rules have worked effectively over the past
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For over a decade NSSTA and AAPD forged a strong partnership in order to promote thepeace of mind and long-term financial security inherent in structured settlements to the newly
injured and disabled individual. For anyone who comes to disability through accident or injury,
they and their loved ones face new questions and uncertainties. Structured settlements remove
many of the challenges that confront them regarding long term financial and healthcare needs.
From a public health perspective, structured settlements keep many from reliance on
government and they protect scarce resource dollars. Through the efforts of AAPD and NSSTA,
persons who become disabled through accident or injury will gain financial security and peaceof mind.
About AAPD
The American Association of People with Disabilities (AAPD) is a convener, connector,
and catalyst for change, increasing the political and economic power of people with disabilities.
AAPD advocates for full civil rights for the 50+ million Americans with disabilities.
About the National Structured Settlement Trade Association
The National Structured Settlements Trade Association (NSSTA) is an organization
composed of more than 1,200 members throughout the country. These members specialize innegotiating and funding structured settlements of tort and worker’s compensation claims
involving persons with serious, long-term physical injuries. Structured settlements provide theinjured person with the financial security of an assured payout over time. Founded in 1986,
NSSTA’s mission is to advance the use of structured settlements as a means of resolving
physical injury claims.
NSSTA’s members include: structured settlement brokers who work with plaintiff
counsel and defense counsel to develop, negotiate, and implement the structured settlement
for the injured person; life insurance companies which fund the structured settlements throughannuities; property and casualty companies and self-insured entities which enter into thestructured settlement with the injured person to resolve his or her physical injury claim; andvarious attorneys, economists, and experts active in the structured settlements field.
About Structured Settlements
Structured settlements provide crucial financial protection to injured persons
and their families
Historically, a lump sum recovery was the standard option in personal injury cases. The
injured person then faced the daunting challenge of managing that lump sum in order to coversubstantial ongoing medical and living expenses for her or his lifetime. All too often, this lumpsum swiftly eroded away. When the recovery money was used, the injured person was still left
in the same situation as before- disabled and unable to work. In such cases, responsibility tocare for this disabled person fell to Medicaid and public assistance systems.

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Structured settlements provide a better approach. A voluntary agreement is reached
between the parties generally through their counsel under which the injured person receives
damages in the form of a stream of periodic payments tailored to address the future medical
expenses and basic living needs of the injured person and his or her family from a wellcapitalized, financially-secure institution. This process may be overseen by a court, particularly
in minor’s cases.
Often, this payment stream is disbursed throughout the individual’s lifetime to ensure
future medical expenses and basic living needs will be met, and that the injured person will not
outlive his or her compensation. In the case of a disabling injury or wrongful death of abreadwinner, the payment stream can be tailored to support the family. For example, thefamily may have young children to care for at home, with the other spouse unable to return towork or to earn enough to support the family. The payment stream can be tailored to meet thefamily’s specific needs over time, including providing lump sum payments in the future when
the children reach college to help fund the cost of their education.
Structured settlements are voluntary arrangements. The injured person has a choice
whether or not to take a structured settlement, yet many are never informed that they havethis option. In the aggregate, about one-third of the injured persons who are offered astructured settlement choose one (with the other two-thirds taking a cash lump sum). But,
according to industry experts, if an injured person is informed about the option of a structured
settlement and given the opportunity to meet with an expert who can explain how structures
work, acceptance rates increase substantially.
Structured settlements typically are used in the case of major physical injuries “whenthe loss payments are very large” (Closed Claim Survey for Commercial General Liability:
Survey Results, 1997, p. 22, prepared by ISO DATA, Inc., a nonprofit arm of the Insurance
Services Office, Inc., which conducted the survey under the auspices of the National Associationof Insurance Commissioners (NAIC), the national group of the State insurance regulators).
The ISO study found that of the 215 claims involving structured settlements in thesurvey sample, 67 percent arose from “major injuries” (“permanent significant”, “permanentmajor”, “permanent grave”, death and “temporary major”), with an average total present valueof $408,000. The remaining 33 percent of claims involving structured settlements for othertypes of significant injuries had an average total present value of $210,000. The ISO study
found that about half of the present value of the case was paid in an upfront lump sum to meetthe injured person’s cash needs (e.g., retrofitting the house for wheelchair access), and theremaining half represented the present value of the structured future payments (ISO Study, atp. 22). Overall, the ISO study found that the average total present value (including the upfront
cash and the present value of the future payments) of a case resolved by structured settlement
was $343,000 (ISO Study, at p. 21).
Structured settlements have the strong support of the plaintiff’s bar, the defense bar,judges, and mediators.

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The Federal government also makes significant use of structured settlements to resolve
physical injury claims under the Vaccine Injury Compensation Trust Fund established by section
9510 of the Internal Revenue Code and under the Federal Tort Claims Act. NSSTA estimatesthat over 50 percent of all Vaccine Injury Compensation Fund claims for the young children
suffering physical injuries from vaccines are resolved with structured settlements.
In summary, a structured settlement provides these key policy benefits:Protection against premature dissipation by injured persons who usually lack theexperience to manage the financial responsibilities and risks of investing a large lumpsum to cover a substantial, ongoing stream of medical and basic living expenses for alengthy period.

Payout tailored to the day-to-day living expenses and the ongoing medical and financial
needs of the injured person and his or her family.

Payment stream is often for the remainder of the injured person’s lifetime, so that theinjured person does not outlive his or her compensation, and can be extended to the lifeof a spouse and to support children in the family.

Avoids shift of responsibility for care to taxpayer-financed public assistance programs.

Legislative History
Congress has adopted special tax rules to encourage and govern structured
settlements
For these reasons Congress adopted, with bipartisan support, a series of special tax
rules to encourage and govern the use of structured settlements to provide long-term financial
security to injured victims and their families. These structured settlement tax rules haveworked effectively for three decades.
Under these rules, the full amount of the periodic payments constitutes tax-freedamages to the injured person, and the liability to make the periodic payments to the injured
person may be assigned by the settling defendant to a structured settlement assignment
company that will use a financially-secure annuity to fund the damage payments (I.R.C. §§ 130,104, 72).
In the Taxpayer Relief Act of 1997, in a provision sponsored by Rep. Clay Shaw (R-Fla.)and Pete Stark (D-Ca.), and co-sponsored by a bipartisan majority of the House Ways andMeans Committee and by Sen. Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa) in theSenate, Congress extended the structured settlement tax rules to include worker’s
compensation to cover physical injuries suffered in the workplace.
The Victims of Terrorism Tax Relief Act of 2001, enacted to compensate the victims ofthe September 11 attack, included a measure championed by Reps. Shaw and Stark along witha broad bipartisan majority of the Ways and Means Committee and with the support of Sens.
Baucus and Grassley in the Senate to protect structured settlement recipients from factoring
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exchange for a sharply discounted lump sum now. These factoring transactions can jeopardize
the long-term financial security of injured persons and their families.
The Joint Committee on Taxation staff has estimated that the structured settlement tax
rules in Code sections 130 and 72 have a total five-year revenue loss that is “below the deminimis amount ($50 million)” for the fiscal years 2013 through 2017 (Joint Committee onTaxation, Estimates of Federal Tax Expenditures for Fiscal Years 2012-2017 (JCS-1-13),
February 1, 2013, at pp. 25-26).
Conclusion
In summary, structured settlements constitute a private sector funding alternative totaxpayer-financed assistance programs to meet the ongoing, long-term medical and basic
living needs of seriously-injured persons and their families, providing long-term financial
security through an assured stream of payments tailored to the injured person’s needs
throughout his or her lifetime. Thus, structured settlements enable seriously-injured people tolive with dignity and financial independence, free from reliance on government programs andinterference.
The structured settlement tax rules that Congress adopted on a bipartisan basis toencourage and govern the use of structured settlements to provide long-term financial
protection to injured persons and their families have worked effectively over the past three
decades and should remain part of the tax law in any reform effort.

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