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The Structured Settlement

Updated on June 10, 2011

The Structured Settlement Explained

Sometimes an individual may become entitled to a very large sum of money as a result of an injury at work. Such cash, often known as a 'structured settlement cash out' or settlement money, may be granted by, for instance, an Insurance Company as a result of a compensation or personal injury claim. At times however and for a variety of reasons it may not be possible to be given or to receive the cash all at once. It will always be in the Insurance Company's interest for the pay out to be over a long term as they can take advantage of the interest rate on the cash retained.

The solution is to break the cash entitlement down into a number of pre-determined payments. These payments will, through prior agreement be paid out annually over a number of years. This method of cash pay out is known as Structured Settlement payments.

Structure refers to the agreed method and frequency of payments and the Settlement to the amount agreed upon.

Before settling upon a Structured Settlement agreement it is vitally important that all the pro's and con's are weighed up. A Structured Settlement annuity must work for you. It should offer financial security. You must be happy with what will become a long term arrangement. Legal advice is absolutely essential.


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Advantages of a Structured Settlement

The biggest advantage to a Structured Settlement is the possible avoidance of paying tax. Cash recieved in a lump sum will naturally attract the attention of excise and they will want their cut for the government purse. Cash recieved in smaller amounts over a much longer period can be made to fit into your budget and so attract little or no tax.

A Structured Settlement can be extremely beneficial to those who cannot manage a budget. That is you cannot spend what you have not got. The press is full of stories about pools and lottery winners who 'blew' all their winnings in a mater of months or years. Structured Settlement protects your money. 

Disadvantages of Structured Settlement

Possibly the biggest disadvantage to the Structured Settlement is that the cash you recieve is what you have. You may sell but not borrow upon future payments. This means that you are unable to pay out for large purchases, such as a house, even if, in reality you have the money.

Although it is 'your' money you are unable to get at it as and when you want. Not being able to move it about means that you are not able to take advantages of favourable interest rates in other quarters.

Selling a Structured Settlement

Because some people do feel disadvantaged by the terms of the settlement they sometimes see a need to sell. Perhaps they do want to purchase a house or foresee some other need for a large cash sum. Maybe they would like to move the money into a high interest rate account.

There are a number of companies which are only too willing to purchase a Structured Settlement for a lump sum. They are buyers of settlement annuities and in business for the long term and, quite naturally, out to make a profit too. If you are determined to sell do not jump for the first offer. Often the offer is much lower than the seller would expect. You must shop around for the best deal and seek legal advice before you sign anything.

It is not always possible to sell as and when you wish or at all. Some of the deals offered are not going to be anything like you might have hoped. Selling will naturally bring the tax man into focus once again and re-present that problem.

Consider too that once it is sold it is sold you will no longer have that regular income. It is sometimes possible to reach an agreement whereby you will give up (sell) a number of payments in return for a set amount of cash. This amount will naturally be less than if you had continued to recieve payments. Companies are in business to make money not to act as benefactors.

Selling off a number of payments may make some financial sense if it is to be used to pay off debts like credit cards which are attracting punishing interest rates. It is to be advised to explore other avenues to deal with debt as well.

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  • dohn121 profile image


    9 years ago from Hudson Valley, New York

    I wish I had a structured settlement coming to me! My brother-in-law got a nice chunk of money when his family's property was molested by a huge corporation through waste contamination. How much did he get? Let's just say he paid off ALL his debt. Thank you for this. You did a very thorough job on this and know that it will help many.


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