What Is A Structure Annuity Settlement?
A structured annuity settlement provides tax-free, periodic payments over a period of time, specifically designed to meet an injured party’s needs. Specialized consultants facilitate the settlement process, as well as help design and negotiate the structure.
If the settlement is small enough, the wronged party might have the option to receive a lump sum settlement. For larger settlements, a structured annuity settlement will be arranged.
Here’s How They Work
A structured settlement pays out money that is owed from a legal settlement through periodic payments in the form of a financial product known as an annuity. Many legal settlements offer a lump sum payment option, which provides a one-time sum of money. The key differences between both structured annuity settlement options are the long-term security and the taxes. For example, money received from a personal injury case is almost always tax free when you receive it. However, once the money is yours, you’re liable for taxes and dividends from the lump sum.
There are a number of reasons why an individual may receive a structured settlement, the most common cases being:
Personal Injury: A personal injury case is a civil case where someone who’s been harmed files a lawsuit seeking money from the person believed responsible for the harm. Money in the form of a structured settlement helps recipient pay for medical expenses or other costs.
Workers’ Compensation: Most people know about workers compensation, which pays out workers who get injured on the job while they recover. Payments can be used for medical treatment and wage replacement during periods when injured employees are unable to work and other expenses.
Medical Malpractice: In some unfortunate cases, doctors can do more harm than good. In this instance, injured patients or the families of deceased patients can sue for medical malpractice.
Wrongful Death: A structured settlement is also a common way to compensate the family of someone whose death was the subject of a wrongful death claim.
Structured settlement — or structured annuity settlement — are both financial products and legal judgements. While they function somewhat like private assets, they are also subject to complex regulations.
Structured Settlement Payout Options: Compare and contrast the different ways to accept a cash settlement from a lawsuit.
Should You Sell Your Structured Settlement
Unless the financial predicaments are dire, most financial advisers recommend against cashing in annuities or structured settlements. Selling off an annuity can trigger surrender charges as high as 10 percent, and those who sell before age 59 1/2 can also face federal taxes and penalties. Structured settlements are attractive because they generally provide tax-free income for life.
Yet, sometimes cashing in is the only option. The $500 monthly payment from an old accident will help with medical bills early on. however, if the beneficiary loses their job and fell behind on some bills or had to make significant costly repairs to his home, a lump-sum payout of $50,000 may seem quite enticing.
Here are some important things to note if you want to cash in your settlement:
- Selling off an annuity can cost surrender charges up to 10 percent.
- Selling before age 59 1/2 can trigger federal taxes and penalties.
- You receive a lump sum within weeks instead of years
- Pay off debts, especially those with high interest rates
- You can invest a lump sum, and yield better interest.