Structured Settlement Information
Structured settlements have been around for several decades and have become the settlement option of choice in many legal cases. Structured settlements are most common in cases that result from workers' compensation issues or severe job-related health problems or injuries.
With careful management, a structured settlement can be a great option for claimants, although in some cases it is not always the best. Understanding the background and purpose of astructured settlement can help claimants make the best choice about their settlement money.
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The Facts
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Structured settlements were designed to pay out settlement funds periodically and over a designated period of time instead of all at once. The purpose of the structured settlement is twofold: the party paying the settlement has the option to provide the payments over time instead of all at once, and the claimant can ensure that ongoing payments that will arrive as scheduled to take care of financial needs. In some cases, the payments from a structured settlement can be transferred to an heir if the original claimant dies before the maturation of the payments.
History
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Structured settlements were first developed and used in the United States during the 1970s. Until then, people who won large settlements would receive the entire payment as a lump sum. At first, structured settlements were offered in legal cases when the claimant was due a large sum after a major injury. But over the last three decades, structured settlements have become the norm instead of the exception in any case requiring a large payment.
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Features
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Structured settlements tend to be one of two varieties. The first is a basic financial arrangement, in which the party paying the settlement provides periodic payments to the claimant. The terms of the settlement determine how often the claimant receives the funds.
The second option is in the form of insurance annuity payments. With the latter, the settlement money is used to purchase life insurance annuities that the insurance company will distribute to the claimant over the designated time.
Time Frame
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The time frame for paying out a structured settlement is dependent entirely on the terms of the settlement itself. In some cases, a specified amount will be paid on a certain date each year. In other situations, the claimant will request payments every few years. Similar to the annual payment, this option means that the required amount will be paid on a named date every three years, every five years, or on an otherwise determined schedule.
Pros and Cons
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Structured settlements have positive and negative effects. The most significant "pro" is that structured settlement payments--just like the lump sum payments of the past--are subject to significantly reduced taxation, and might even go untaxed. Additionally, financial experts have noted that structured settlements can provide increased financial security for those who might not know how to handle a large sum all at once.
On the other hand, some claimants feel that the structured settlement is unfair and locks them into the payments when they might prefer the larger sum. In some cases, claimants request the lump sum instead so that they can make whatever investment options they prefer.
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References
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