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Know about structured settlements in detail

A structured settlement is a financial or insurance agreement arrived at post-negotiation where the plaintiff receives money as compensation for injuries and like in specific, periodic payments as opposed to receiving all the money in one go. The settlement they agree upon can be offered by the defendant or demanded by the claimant. But it is necessary for both parties to agree before it can be carried through. In the U.S., structured settlements have been recommended and made popular by several credible disability rights organizations. Thanks to structured settlements, cases don’t necessarily go to court. Structured settlements are offered in cases where there is severe personal injury, injury on the job, and wrongful death.

A structured settlement is flexible in that most things about it is negotiable. This includes the period over which the settlement needs to be paid, the frequency of the amount paid –monthly, biannually or annually and the amount to be given in each payment. Whether a lump sum should be paid towards the end of the settlement period, and whether the payments should be stopped on death or continue to heirs.

With structured settlements, the insurer of the defendant funds an annuity policy for the claimant which will stream continuous sums of money in periodic intervals to the claimant.

Structured settlements have their benefits and drawbacks. The only reason a lump sum is beneficial is immediate availability of a substantial amount of cash in the event an expensive surgery, purchase of a business or a house, and the like.

They are considered advantageous because they provide the claimant with a sizeable tax benefit. Settlements made for personal injuries are considered tax free. There are exceptions, however, as in the case of a settlement made for punitive damages. Structured settlements also guarantee the claimant income over a specific period. It is recommended that minors should go for a lump sum as opposed to structured settlements so they can invest the money for future use. Structured settlements cater to a claimant’s specific needs both in the present and the future. Usually, structured settlements also work for the insurer because his obligations will be covered in these situations. Structured settlements allow for a lump sum payment to be combined with them to take care of immediate expenses such as medical bills. They also allow for a certain sum of money to cover unexpected incidents in the future. For instance, if a cure for the claimant’s condition is developed in the future, he can use the money to give it a try. Structured settlements help the defendant, and the claimant reaches an agreement when they are completely divided on how much money is necessary for the case.

Structured settlements have their drawbacks in that certain parts of the settlement can be subjected to taxes. These include punitive damages, fees charged by the attorney, and damages that emotional and not physical. There are chances that inflation, recession, and other unexpected market conditions can make the periodic income inadequate in the future. Structured settlements cost insurance companies less than lump sum settlements, and they don’t normally reveal the exact amount this costs them one way or the other. The claimant or his attorney, then, cannot make an appropriate assessment of pros and cons of the offer they give. But now, some states have a law that requires the insurers to be transparent about the costs before they settle.

As a claimant, you cannot own the annuity policy. If you do, the tax benefits will not apply. Instead of paying you the money directly, the defendant will send the amount to an assignment company which is a subsidiary of the insurance company that provided the annuity. The assignment company buys the annuity from the insurance company and will send the settlement amount to you as per the contract. Therefore, you do not own the payment. The tax code outlines this as you expecting payment instead of owning it.

Structured settlements are a good deal seeing that they provide a steady income stream. Their predictability makes them comforting. But should situations change, and you need a lump sum of money to pay, say, college loans, various debts, down payments on homes or cars, or money to launch a business, you can sell your structured payments. Remember, should you choose to sell your structured payments, you are not legally obliged to sell all of them. You can sell a limited number of payments depending on the amount of money you need. You sell payments scheduled to you for a specific number of months. Once this period is over, you will start receiving the payments regularly again. You can also choose to sell a portion of every payment you receive. This way, you will get your settlements regularly, even if the amount is less, and you can plan your expenses around it.

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