Structured Settlements: A Guide to Financial Security

structured settlements

Nearly $6 billion in new structured settlements are issued every year. These settlements are used in cases like personal injury and wrongful death to help people financially. They are often chosen over one-time payments because they offer a steady income. This is especially important for people who can’t work because of their injuries.

Structured settlements provide different payment options based on the person’s situation. For example, someone may receive money right away for immediate needs. Others might get payments for their whole life or for future expenses. Companies like New York Life and Liberty Mutual make sure these payments are stable and reliable.

Key Takeaways

  • Structured settlements are commonly used in cases like personal injury, workers’ compensation, medical malpractice, and wrongful death.
  • They involve four parties: claimant, defendant, assignment company, and insurance company.
  • Key benefits include tax-free payments, customizable schedules, and financial stability unaffected by market fluctuations.
  • Structured settlement annuities provide a steady income and protect recipients from impulsive spending.
  • Drawbacks include limited flexibility, lack of immediate access to funds for emergencies, and potential financial loss when selling for immediate cash.
  • Federal laws require judicial approval for settlement transfers in 48 states, offering additional safeguards for recipients.

Introduction to Structured Settlements

Structured settlements are helpful in cases like personal injury or wrongful death. They provide a steady income through scheduled payments. These payments come without any tax, making them a smart financial choice.

Settlements are often paid as an annuity. This means you get the money over a period, not all at once. It keeps your spending in check and provides a reliable income. These payments also create a financial safety net for both sides involved.

You can choose payment plans that fit your needs. For quick cash, there are immediate payments. You can also set up payments for future big expenses. For children’s needs, like saving for college, this is very helpful.

Structured settlement payments protect you from the ups and downs of the economy. They are also tax-free. However, you can’t change the payment plan later, and emergency access to funds is limited. Even so, they help with long-term financial health.

Often, the total you get from a structured settlement is more than the initial amount. It works like a loan, but you don’t pay it back directly. This shows how structured settlements can be a valuable part of your financial plan.

When are Structured Settlements Typically Used?

Structured settlements come into play in many legal situations. They are used when people need financial support for a long time. These settlements offer a regular income to the recipient, meeting their needs consistently.

Personal Injury Cases

In cases of severe accidents, getting the right support is vital. Structured settlements help in this by tailoring payment plans. This lets the injured party cover medical, rehab, and living costs without the urge to spend all at once.

Medical Malpractice

For Medical Malpractice settlements, structured payments are key. They support long-term medical care and therapy. With these settlements, the injured party gets continuous income for their medical needs without facing financial hardship.

Medical Malpractice settlements

Wrongful Death

Structured settlements are very important in Wrongful Death cases. They ensure ongoing financial help for the deceased’s dependents. This steady income eases the family’s financial stress, offering stability after losing their breadwinner.

Settlement Type Key Benefits
Personal Injury Ongoing medical costs, rehabilitation, and living expenses
Medical Malpractice Long-term medical care, therapy, continuous income
Wrongful Death Financial support for dependents, stability for minors

Cases Involving Minors

Structured settlements are critical for minors. They ensure financial support until the child reaches adulthood. This includes funds for education and healthcare. Such settlements protect the child’s financial future until they are old enough to manage the money themselves.

Advantages of Structured Settlements

Structured settlements bring many benefits for those receiving them. They ensure a steady income for the future. And they cater to your specific financial needs.

long-term financial security

Guaranteed Income

One big plus of a structured settlement is its income security. You get payments regularly, for many years. This is helpful, especially if you can’t work because of an injury.

Tax Benefits

There are great tax advantages to structured settlements. You won’t pay taxes on the money you earn. This tax break helps you get the most out of your settlement, financially.

Customizable Payment Schedule

Structured settlements allow for flexible payment plans. They can be set up to suit your specific needs. You might need some money up front, or regular payments for life. You can arrange it.

Protection Against Poor Money Management

Many people spend a lot faster when given all their money at once. Structured settlements keep you from running through your money too quickly. This helps keep your finances secure over time.

No Risk of Investment Loss

Structured settlements shield you from market downturns. Your money is safe from investment risks. This is because it is managed by reliable insurance companies. So, you always get your payments, worry-free.

Advantage Structured Settlement Cash Settlement
Guaranteed Income Yes No
Tax Benefits 100% Tax-Free Subject to Taxes
Customizable Payment Schedule Yes Limited
Protection Against Poor Money Management Yes No
Investment Loss Risk No Yes

Understanding Structured Settlement Payments

Structured settlement payments give you flexible choices. They’re designed to meet your financial needs over time. You can choose quick help or plan for the future with these options.

structured settlement payment options

Lump-Sum Distributions

Lump-sum distributions offer a big, immediate payment. This can cover sudden expenses or help in emergencies.

Deferred Payments

With deferred payments, you get money at later dates. This option is good for times like retirement or when your kids are ready for college.

Life-Contingent Payments

Life-contingent payments give you money as long as you’re alive. They’re ideal for long-term financial plans and daily expenses.

Periodic Lump Sums

Periodic lump sums pay out larger amounts at regular times. They help you save for big buys, like a new car or home improvements.

Increasing or Decreasing Payments

Payments can change over time to meet your needs. This is useful to keep up with inflation or when your income changes.

Knowing about these options can help you make a solid financial plan. Whether you choose a lump sum, deferred payments, or another type, these plans are versatile. They can meet different financial goals and needs.

Tax Benefits of Structured Settlements

Structured settlements have great tax perks, making them a smart choice for those who get them. This special tax treatment under U.S. law means more money for you, less for taxes. We’ll look into why these tax breaks are a big deal, especially the parts about payments being tax-free, IRC Section 104(a)(2), and the 1982 Periodic Payment Settlement Act.

Tax-Free Payments

The best part about structured settlements is getting money that you don’t have to pay taxes on. This perk covers wins in court from personal injury, sickness, medical mistakes, death cases, and if you get hurt at work. With this setup, the full amount you get, plus any extra money it makes, isn’t taxed. And if you sell some of your future payments, that’s tax-free too. However, if the money is for punishment or if you make extra money from interest, those parts are taxable.

IRC Section 104(a)(2)

Under the Internal Revenue Code (IRC) Section 104(a)(2), money won from getting physically hurt is tax exempt. But, if you win money for mental distress without any physical harm, you’ll have to pay taxes on that. This rule makes sure you keep the money you get for physical harm, tax-free. It helps protect your financial future.

Periodic Payment Settlement Act of 1982

The Periodic Payment Settlement Act of 1982 made structured settlements even better, including for injuries at work. It added tax benefits for these cases, showing it wants to help hurt workers. This act guarantees that all settlement income is tax-free, making your future money worry-free.

Here’s a table to show how different case types get tax benefits:

Case Type Tax-Exempt Status Notes
Personal Injury Yes Compensatory damages are tax-free
Physical Sickness Yes Compensatory damages are tax-free
Medical Malpractice Mixed Punitive damages are taxed
Wrongful Death Yes Compensatory damages are tax-free
Workers’ Compensation Yes Extended by the Periodic Payment Settlement Act of 1982

Structured settlements come with big tax benefits. These perks let you keep more of your money, making your financial future safer and less taxing.

Potential Drawbacks of Structured Settlements

Structured settlements have many benefits. Yet, it’s vital to know their downsides too. This knowledge is key to decide if they’re right for you.

Lack of Flexibility

Changing how you get paid is hard with a structured settlement. This can become a problem if your money needs change suddenly.

Inflation Risk

Over time, inflation can lower the value of your payments. This might affect your buying power and long-term financial plans.

Access to Lump-Sum Money

Getting a big amount of money quickly is hard with structured settlements. If you want it, you might face fees and legal issues.

Insurer’s Insolvency Risk

The company backing your settlement’s stability is crucial. If they go bankrupt, your payments could be in danger.

Missed Investment Opportunities

Choosing structured settlements may limit the chance for better returns elsewhere. Deciding between the risks and rewards of investments is important.

How to Choose the Right Structured Settlement Option

To pick the right structured settlement, you must understand your short and long-term money goals. It’s important to do financial planning for your settlement. This makes sure it meets both your current and future money needs. Here are some important things to think about:

Consult with Professionals

Talking to experts like tax lawyers, accountants, and financial advisors is very helpful. They can give advice that fits your situation. They help with taxes, plan payments that work for you, and reduce financial risks.

Evaluate Financial Needs and Goals

Figure out what you need now and later to choose the best settlement. These kinds of settlements are liked for offering stable finances over time. Decide if you want a lot of money now or smaller amounts over time. Also, see if your future plans, like retirement or big events, can use this money well.

Consider Future Expenses

Think about future costs when picking a structured settlement. Like big medical bills or sending someone to college. Setting it up right can help cover these later on. But remember, the money might not keep up with how prices change over time.

By following these steps and getting help from professionals, you can pick a settlement that keeps you financially secure.

Example of a Structured Settlement for a Personal Injury Claim

Structured settlements are often used in big personal injury cases. These cases might involve serious injuries needing medical care for a long time. A common way they’re set up is with an initial payment to handle immediate needs. After that, there are monthly payments.

Say a personal injury case is settled. You might get a big payment first. This is for things like urgent medical bills. Then, the rest of the money comes in monthly. This setup makes sure you have money regularly. The method of payment can be adjusted to fit different needs, like when you get paid or how much the payments are. This includes options such as delaying some payments, payments that only happen if you’re alive, and even payments that go up or down in amount across time.

Payment Type Example Amount Description
Lump-Sum Distribution $50,000 First payment for things like medical bills and legal fees.
Monthly Payments $2,000 Regular money for living and medical expenses.
Periodic Lump Sums $5,000 annually Extra yearly money for big expenses or emergencies.
Inflation Adjustment 2% annual increase Payments go up each year to match the cost of living.

This example shows how a structured settlement can be planned to fit specific needs. It proves to give financial safety for life, and even sweetens the deal with tax benefits. These setups keep steady income for the receiver. Plus, they allow for flexible payment plans that meet what the person actually needs.


Structured settlements are a powerful tool for those aiming for financial safety, especially injury victims looking for a stable, long-lasting solution. With this method, claimants get their money over a longer period instead of all at once. This leads to benefits like tax-free payments under the Periodic Payment Settlement Act of 1982. Plus, each plan can be adjusted to the person’s financial situation and needs.

These settlements make it easier to settle without going to court, which saves time and money. They start with an initial large payment and then follow with smaller, regular payments. This provides immediate help and a steady income. The money is safe because it comes with a guarantee from trusted companies or state groups. This keeps the funds safe from bad management or sudden pressures to spend it all.

For almost 25 years, the U.S. government has endorsed structured settlements, mainly for injury cases. These provide financial safety for those affected by serious events like disabilities, wrongful deaths, or severe accidents at work. Although they are not perfect and have their flaws, like less flexibility and the rare chance of the insurer going bankrupt, their benefits are clear. These include not paying tax on the payments, having a secure income, and protection from creditors. Choosing wisely and getting advice from a finance expert ensures a secure financial future, meeting your long-term goals.

Source Links

About the author

Nathan Tarrant

Nathan has worked in financial services, marketing, and strategic business growth for over 30 years. He was the founder and COO of a Queens award-winning financial services company based in the UK, and a capital investment company in Virginia USA..

He operated as a financial & alternative investment advisor to delegates of the UN, World Health Organization, and senior managers of Fortune 500 companies in Geneva, Switzerland, after the 2008 financial crash.

As an avid investor, especially in alternative investments, he runs this blog, sharing his growing experience and views on alternative investments. You can see Nathan's full profile at his personal website
You can read his full bio on our about us page

Follow us

Don't be shy, get in touch. We love meeting interesting people and making new friends.


We are required by the FTC to inform you that the content on this website is not financial advice and should not be viewed as such. When it comes to investing of any type, you should always do your own research and speak with a professional financial advisor before making any decisions financially. The owners of this website may be paid to recommend American Hartford Gold or other companies. The content on this website, including any positive reviews of Goldco and other reviews, may not be neutral or independent.

American Hartford Gold Banner