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Structured Settlement Annuity

If you get seriously injured or sick because of someone else’s fault, you will likely be able to win a sizable payment from the negligent person in court. This court will award you this money to make up for your suffering, your medical bills, and your future inability to work.

When you win a payout like this, it will likely come in as a structured settlement annuity instead of a single lump-sum payment. If you have been awarded a structured settlement annuity or think you will receive one soon, it is important that you understand how this product works because it will make up a sizable part of your income for the future.

What is a Structured Settlement Annuity?

A structured settlement annuity is a type of investment contract run by an insurance or investment firm. When you win your court case, the losing party pays a large, lump sum payment to the annuity company to set up the contract. The annuity company then invests the funds and manages the account for you.

From this pool of money, you receive a series of future payments over time. Depending on how you plan your settlement, you could receive future payments for a fixed number of years or you can set up your annuity to last for your entire life. You can also set up your annuity to give you the same payment each year, changing payments over time, or schedule some lump sum payment. This gives you a lot of flexibility to manage your court winnings.


Why are Structured Settlement Annuities so Popular?

Structured settlement annuities are quite popular because they offer a few major benefits. First of all, the tax laws for these settlements are very generous. When you receive a payment from a structured settlement annuity, the payments will mostly be income tax-free. The IRS creates this tax ruling to help Americans deal with the financial loss of an injury or illness. This tax benefit generally only applies to your compensatory damages, the money you won to pay your medical bills and make up for your personal suffering. If you also won extra punitive damages, this income from your annuity will be taxable.

A structured settlement annuity is also useful because it helps you manage your money. If you receive your entire court settlement in one large payment, it would be tempting to go on a spending spree. This could put you in serious trouble down the road because once your lump sum payment is gone, no more money is going to come in. Since a structured settlement annuity spreads your payments over time, you make sure you don’t run out of income.

The last advantage of a structured settlement annuity is that it steadily grows your money over time. These products offer a safe, guaranteed annual return on your money that is significantly higher than what you would get in a bank account. This way you get more of a financial benefit from your court winnings.


Why is Your Structured Settlement Annuity Company so Important?

When you win your court case and go to set up your structured settlement annuity, it is very important that you work with the right company. Your annuity payments will be scheduled to go on for many years and a lot can happen in the financial markets. If you work with an unstable company that goes bankrupt, your annuity disappears as well and you will not receive any more income. Even if your annuity company doesn’t go bankrupt, a badly run company could cause delays to your future payments or lead to a poor rate of return on your money.

As you compare companies, you should closely look at their credit ratings. These ratings are released each year by independent research companies and tell you how safe each company is. The higher a company’s rating, the less likely it will go bankrupt. Don’t let yourself get trapped with an unstable firm. Whatever benefit you get today could turn into disaster tomorrow if your annuity company goes bankrupt.


What if You Change Your Mind About Your Annuity?

While structured settlement annuities work well in most cases, one of their disadvantages is that they are a little inflexible. If you change your mind about your future payment schedule, you may need to pay a costly early surrender charge to take your money out earlier. This can be very frustrating should your financial needs change.

Fortunately, there is a way to withdraw your money early without this issue. There are structured settlement companies that are willing to give you a lump sum payment in exchange for some or all of your future annuity payments. Selling your annuity payments generally gives you more money than cancelling the contract. This gives you some freedom should you decide you want your money out earlier than the annuity schedule.

When you win a court settlement, it is important to get the most out of your winnings so you can get through your injury or illness. By setting up a structured settlement annuity with a strong company, you’ll make sure that your future income will be there when you need it most.