Structured settlements are periodic payments awarded to an injured party following certain court cases. Payments are most often funded through an annuity contract with a life insurance company. But annuities can serve other purposes, too, such as income security in retirement.
Is a Structured Settlement an Annuity?
Structured settlements and annuities share a unique connection.
While most structured settlements are annuities, not all annuities are structured settlements.
Learning how structured settlements work is essential to understanding their link to annuities.
What Are Structured Settlements?
Structured settlements result from legal cases, usually personal injury or wrongful death cases.
A plaintiff (the person wronged) who receives money from the defendant (the person or company accused of wrongdoing) can choose to receive compensation via a single lump sum or a structured settlement.
A structured settlement disperses money from a lawsuit gradually over time to act as a safety net and provide long-term financial security to the injured party.
The concept is simple: Someone who receives a huge windfall of cash may run through the money quickly, leaving them dependent on government assistance. But with a structured settlement, the payments are stretched over a longer period.
Settlement payments can be designed to provide money for medical care and other needs. Cost of living adjustments can be factored in as well.