FAQ: What is a Structured Settlement?

Some fifteen years ago the Internal Revenue Service created an opportunity for people like yourself, who are about to settle your personal injury lawsuit, to have a portion of the money you receive invested to produce tax free periodic payments. The interest that is earned is never taxed by the IRS because it is viewed as compensation for the injuries that you have suffered. If, however, you receive all of the money from your settlement as one lump sum in cash, and then you later invest it yourself, or with the help of someone else, the interest that you may earn can be taxed at the same rate as income that you earn from your job. The sad truth is that many people who have suffered injuries and experienced the long ordeal of a lawsuit lose a portion or all of their settlement to bad investments or to taxes that eat away at their good investments. They can fall victim to investment consultants who take commissions and sales charges, and make optimistic promises for their returns, without guaranteeing the results.

A structured settlement ensures that you will never lose your money, you will earn high interest rates, and never pay taxes on the interest that is earned. You may have any portion of your settlement devoted to a structured settlement, but the plan must be set up before you receive your money and before you sign the papers which conclude your lawsuit. You may decide to receive monthly payments for the rest of your life or only for a specified period of time. The payments may start right away, or wait until a time in your life when you can best use them (like retirement or to pay for college when your children turn age 18). Once you decide on a plan, the terms of your payments are written into the agreement which become part of your settlement.

Why can’t I take all my settlement in cash and later obtain a structured settlement?

Once you have received your money, and signed a settlement agreement, any money that you invest is no longer viewed as compensating you for your injuries. The interest you may earn is taxed in the same way your income from your job is treated.

Can a stockbroker or my bank obtain a structured settlement for me?

No. A structured settlement can only be set up by an appointed structured settlement consultant. Only he or she is appointed by the life insurance companies to access what are called “settlement annuities” to make the future payments to you.

If a structured settlement is arranged for me, how do I know that this money is safe?

One of the reasons why judges often order structured settlements for children or for people who have medical expenses in the future and no ability to work is the unmatched security that they provide.

The investment is placed with the largest, most stable life insurance companies in the world that have received the highest ratings by the services that keep track of financial security and strength. Life insurance companies are also backed by state guarantee funds. Some structured settlements are funded by U.S. Treasury Bonds which are considered to be the safest investments in the world.

Can I view the markets structured Settlement Planners work with?

There are a wide array of companies specializing in handling structured settlements accounts, varying in safety, risk, and return.