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What is Structured Settlement ?

Updated on August 16, 2014

Structured Settlement

The world structured settlement first coined in Canada. This is related to financial matters where payment is done periodically for a particular time period or life long under some liable policy hence this is also called as periodic structural settlements. A structured settlement is widely used by insurance companies because it won't cost much for them when compared lump sum. The popularity to this started in 1970's replacing the lump sum. It is most popular in countries like Australia, England, Canada and some common law countries and widely used in product liability and in injury cases.


How Structured Settlement Works ?

The working principle of structured settlement is simple. Let consider the below example so you can get a better idea about this principle.

  • X crashes his car into Y leaving y so badly injured, Y can no longer work.
  • Y sues X.., but really Y is suing his car insurance company, which provides X with his liability insurance.
  • X's insure settles for around $15 million... but rather than pay that all out to Y at once, they offer to buy a special annuity with the $15 million instead.
  • X's insure buys a $15 million annuity from a life insurer and names Y as annuitant. Y never owns the annuity. X's insurance company does.
  • The annuity gives Y monthly payment for life.

This is the whole idea of structured settlement and how it works. You may think it is just a simple think to understand and follow..., but if you want to get into this, then you should know it in depth because it depends on how wisely you adopt financial techniques.

Steps Involved in Process of Selling a Structured Settlement.
Steps Involved in Process of Selling a Structured Settlement.

Growth of Structured Settlemets in United States

To encourage the use of structured settlement and to provide long term financial security to injured victims, an act was passed in 1982 called Periodic Payment Settlement Tax Act. This is the special tax rule adopted by Congress and the rules are coded in section 104(a)(2). Structured Settlement endorsed by large number of disability rights organization in United States and still counting.

In United States, J.G Wentworth is the largest buyer of structured settlement . This firm specialized in purchasing structured settlement from individuals. It has built it's brand with a tag line saying "It's your money, use it when you need it".

For more info related to structured settlement, visit Wikipedia.

Structured Settlement Today

Today the principle of structure settlement is got it's stand in US and European countries and emerging in Asia. The flexibility of the principle makes it to fit in all most all the field i.e., from automobile insurance to life insurance.One can improve his financial security if he follows a wise structured settlement method. The famous financial writer had writer books on structure settlements and she says one can reduce the wastage of lump sum by adopting proper financial choices.

This is what I know about structured settlement. If you know any thing other than this then please comment and help me to understand it better. If you have any query regarding the article, please feel free to contact me.


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