Annuities have become the preferred method for funding structured settlements because their pricing and overall design provide a great deal of flexibility to structure payment streams geared to individual needs. In many cases, a structured settlement is negotiated and agreed upon by all parties in a pre-trial setting. In others cases, such as those involving a minor or an individual deemed incompetent, structured settlements may be required by law or court order. The advantages Historically, a lump sum of money was paid to claimants to settle personal injury cases. This type of settlement can place a significant burden on the injured individual or family, because they then are responsible for managing a large sum of money over the course of the claimant s lifetime.
Few individuals possess such sophisticated money management skills or experience.
Structured settlements, by design, address this issue and provide a number of additional advantages. No income taxes are owed on the settlement amount or any earnings that result from the growth of that money while it is possession of the party responsible for making payments. While a cash settlement would be income tax-free, any interest or investment earnings would be taxable. As a result, structured settlements usually provide more money over time tax-free. The claimant and family are released from worry that money will be spent prior to meeting the long-term needs the settlement is intended to cover.