The term structured settlement is a technical description of a legally binding payout over time for the extinguishment of liability resulting from fault or injury inflicted on another. In many instances, this payout is for the obligation to pay winnings or the compensation for the damage and/or injuries sustained. The central aspect of the structured settlement payments is the cash payments made over time.
In insurance terms, a structured settlement example is a system of an annuity, where one ordered to pay compensation, called the payor, purchases a form of insurance called an annuity. The annuity generates earnings, which in turn, is used as the funds to pay the obligation.
Another way that structured settlement payments operate is by the payment of funds directly over the scheduled period of time. This is done through a court approved compromise agreement whose non-compliance would result in further liability.
Because of its technical nature, these are the terms often used in the process of undertaking structured settlement payment examples.
- Annuity Contract. This is a written contract between the annuitant and an annuity company. The annuitant is the person entitled to receive the money. This document stipulates the deliverables under the contract, as well as the specifications of the annuity. These include schedule of payments receivable.
- Assignment. This involves the transfer of a right, interest or obligation hence the term assignment. In structured settlement payments, another party would be the one paying the amounts under the agreement as ordered under the annuity contract.
- Lump Sum Annuity. This is a payment of full amount done at one time or the payment of installments in larger amounts over specific dates.
- Net Present Value. This is the current value of the future net cash flow of the investment after the deduction of the initial amount invested. This is one of the most effective tools to estimate the value of a structured settlement payment scheme.
- Settlement Agreement. This document is a formal instrument where a claim’s liability can be released between the defendant and the insurer. The amounts paid out by the respondent in the annuity would be done with the consent to the recipient.
Structured settlement payments are compromise agreements entered into to resolve liability in a judicial matter. This is an economic vehicle to compensate the damage and/or injury sustained by a recipient. In order to protect the interests of the recipient as well as the industry, laws were passed in both the state and federal levels for structured settlement payments.
There are frequently asked questions on structured settlement payments that often need to be clarified:
- Can a structured settlement payment scheme be used to pay off a loan? While the general rule is that structured settlement payments cannot form part of a loan, either as collateral or payments. The current laws in the United States are designed specifically to protect annuitants but this can used as an asset towards credit ratings.
- Can a lump sum amount be received in exchanged for structured settlement payments? The answer to this is in the negative. Because of the tax exempt status of these payouts, the structured settlement example cannot be exchanged.
There are many kinds of structured settlement examples that need to be properly discussed when a recipient is faced with a financial crossroads. Finding out all the facts and all its consequences is necessary before making any decision affecting their future.
To take closer look read our in depth guide on how structured settlements work.