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Structured Settlement FAQ'S

Structured Settlement FAQ is a great idea to present to my new clients, as well as share them with you. I have been collecting the most popular frequently asked questions about structured settlements, and here they are:

What Is A Structured-Settlement?

A structured-settlement is a type of agreement between a Defendant and a Plaintiff.  Both sides get together and negotiate a plan to pay the injured-party compensation for their injuries. It can take the form of fixed payments for a fixed amount of time, or it can be custom-tailored to the needs of the claimant. Perhaps the best scenario would be a lump-sum up front, followed by fixed-payments, and maybe some milestone payments, such as a new piece of medical equipment in 3 years, or the milestone of college tuition.

The structured-settlement can be agreed to in an out-of-court session, or by a court-order, such as in the case of minor-children. The point is that the claimant will receive an income-stream that is tax free. The Federal Government passed legislation in 1982, setting up strict criteria for the creation and sale of structured settlements.

How Do You Determine The Amount Of Payments?

In these types of cases, where there was a physical-injury, issues such as medical-care and basic-living costs are considered. Very often, an expert-witness is summoned, who will substantiate calculations on long-term expenses of the various needs of the claimant over their lifetime.

After the Defendant and the Plaintiff come to an agreement, they must get Court Approval. The Defendant can then pay the stipulated amount via an annuity it can purchase from a Life Insurance Company. The Defendants love annuities, as they can save money on the settlement amount. The Plaintiff, or Claimant, gets a guaranteed income-stream backed by a highly rated life insurance firm.


What Types Of Cases Favor Structured-Settlements?


Here are several examples of cases that could settle this way:


            * People who have been temporarily of permanently disabled.

            * In Guardianship cases, which may center around minor-children.

            * Workers’ Comp Cases.

            * Wrongful-death cases.

            * Severely injured persons who have long term medical needs, etc.


Structured Settlement Advantages

There are several advantages to a long term structured-settlement. The most important is security. Knowing that there will be an income-stream well into the future that is guaranteed. This makes recovering from the injuries easier without stressing over investment strategies to cover future needs. Another great benefit is that 100% of every payment will be exempt from federal & state income-taxes. The risk of mismanagement of funds in negated by the fixed-payment plan.

Structured-Settlement Disadvantages

One of the disadvantages would be that the periodic-payments cannot be borrowed-against, deferred, accelerated or altered, once established.

The risk of default is another one, but can be minimized greatly by the use of a highly rated life insurance company to supply the annuity. Also, there are state insurance-guarantee associations that will guarantee an annuity up to a specific dollar amount. It is also possible to distribute the settlement-proceeds amongst several life-insurance firms to decrease the risk of default.

I hope this structured settlement FAQ was of some insight.