Structured settlements are a form of annuity that distributes money based on a civil lawsuit settlement. These payments are meant to provide a long-term stream of income to meet a claimant’s financial needs, and can sometimes provide various payout options.
If the settlement amount is small, it is not uncommon for insurance companies or the wrongful party to provide a one-time lump sum. For larger settlement amounts, payments are usually disbursed through periodic payments.
Structured Settlement vs. Lump Sum
When you win a civil lawsuit or settle out of court, there are two popular ways to pay damages: via structured settlement, or as a lump sum. These options have different advantages.
A lump sum settlement is a one-time payment. This option has the most flexibility and freedom. With access to a large sum of money at once, you can pay off debt, make a large purchase or invest. On the other hand, a large sum of cash can influence poor spending habits.
A structured settlement disburses periodic payments over a set period of time, allowing for a long-term, consistent income stream. This payout option is more financially secure because it prevents the entire amount being spent too quickly.
Structured Settlement Payments
There are a number of ways to set up your structured settlement so you get paid in a way that makes sense for you. Many parts of the contract can be customized:
- Payment schedule
- Start dates, including immediate or deferred payments
- End dates
- Death benefits
One of the most important decisions you make when establishing a structured settlement is determining how long the payments last. Some of the most common payout options include:
- Lifetime Payments – Structured settlement payments are distributed until the claimant’s death. At the time of death, all payments stop and nothing is transferred to a beneficiary.
- Period Certain – Payments are distributed for a fixed period of time, like a certain number of years. Once the term is over, the payments stop. This option could be risky to some if they are relying on the payments as their only source of income.
- Life with Period Certain – This option combines period certain with lifetime benefits. You are guaranteed your payout within the certain period of time. If you die during the period, a beneficiary will receive the remainder of your structured settlement. If you live past the certain period, the insurance company must continue making payments to you beyond the certain period. When you die, nothing will go to a beneficiary.
- Joint and Survivor – Your structured settlement is guaranteed to pay out to you and your beneficiary until both of your deaths. When you die, your survivor will continue receiving your payments. This will continue until the settlement runs out, or until their death. Joint and survivor is popular amongst married couples.