Types of Structured Settlements

A structured settlement is a method of payment in a lawsuit where somebody gets hurt due to the negligence of the company or a person. Structured settlements pay in periodic installments, in place of a single lump sum. These installments can be negotiated to suit the needs of both parties. They can be quarterly or yearly or whatever is acceptable to both the parties.

Who should use structured settlements?
Structured settlements are appropriate for various types of cases, as for example
• Disable people
• Incompetent people
• Workers compensation cases
• When spouse or children need a continuous monthly income
• Long-term needs or living expenses

Structured settlements are beneficial for both the parties. Firstly, the payment received is not considered annual gross income, so it is exempted from tax. Secondly, they are more secure as they ensure the guaranteed payments and can be planned to meet the future needs of the applicant. They provide financial security as they cannot be misused easily. Even in an incident of loss, the loss is small. In addition they relieve the recipient from the tension of managing a big sum of money. And it is a cheap process for both the parties.

Another benefit is that in case the recipient needs the money immediately, a structured settlement can be converted to cash. The recipient can sell the settlement to an interested company for a lump sum.

Types of Structured Settlements:
Based on the needs of the recipient, structured settlements are divided into five types.
• Life Annuity
• Temporary Life Annuity
• Lump Sum
• Life contingent lump sum
• Joint Survivor Annuity

Life Annuity: In life annuity, payments are being made in periodic payments for a guaranteed number of years. The number of years can be decided according to the recipient life expectancy. In case the recipient passes away before the designated number of years, the beneficiary will continue to receive the payments for the remaining guaranteed number of years.

Temporary life annuity: It works like the life annuity but it ends with the death of the recipient. There is no condition for the beneficiary to collect the payments after the death of the recipient.

Lump Sum: In lump sum, an arrangement can be made to pay the lump sum in some future date, e.g. five years in to the future. In case the recipient is not alive till that time, the beneficiary can always collect that lump sum.

Life Contingent Lump Sum: It works like the lump sum but with the condition that recipient should be alive on the due date. The beneficiary cannot collect on the behalf of the recipient.

Joint & Survivor annuity: A Joint & Survivor annuity will pay the recipient monthly payments for life. In case the recipient dies and there is a beneficiary, he or she will continue to receive the balance.
All these options can be negotiated according to the requirements of the participants. And both the parties can arrange them to get maximum benefit.