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Structured settlements are structured cash payments via an annuity scheme that is normally established to compensate claimants for their losses (mainly due to injuries). Introduced in United States in the early 80s, structured settlements stand as an alternative to large lump sum cash settlement.
When structured settlement payment is applied?
Commonly, structured settlement is most suitable for injury case where the victims life is affected in long term. For instant:
– Injuries that required long term medical treatment.
– Injuries that cause lost of working ability.
– Injuries that cause permanent or temporary disabilities.
– Fatal accidents, where regular financial support is needed for the surviving family.
Advantages of structured settlement
Despite best intentions, lump sum payments are always wasted in a short time after the money is received. In most cases, payment receivers are overwhelmed by the big pile of money and often spend it wildly like lottery winners.
Inexperience in managing such a huge amount of money made them put up unrealistic investment and purchasing useless luxurious. Money meant for covering the claimants life in long term is often dissipated, leaving the person without the means of self support or appropriate care.
As part of the national intentions to encourage structured settlement system usage, related tax laws had been extended in the favor of structured settlement receivers. Ultimately, structured settlement makes more financial sense to the claimant as the structured income is not taxable at the moment of writing. Also, structured settlement payments do not affect social security benefits. This means, the money an individual will receive from Social Security will be more per payment. More over, claiming structured settlement is cheaper and faster as the system eliminates the need of lengthy court room procedures.
Disadvantages of structured settlement
There are both pros and cons in structured settlement system. For those who cannot manage the money properly, structured settlement means protection.
However, for those that can, structured settlement means limitation. Common financial senses, with such big sum of money you can definitely jump start your new business or investment plan. You could have gain a lot more from the money by just parking them in blue chips stocks or a good mutual fund. Or more over, paying back your home mortgage to save up long term interest charges would have earn you more.
With this, I am not surprise to see that more and more financial institution is now involved in buying back structured settlements from the recipients. Structured settlement recipients nowadays need not to wait for 10 20 years to get back their settlement money. Instead, the future settlement payment can be sold, in exchange of a big lump sum of instant cash.