What’s A Structured Settlement Annuity?

What are structured settlement annuities?  Well first off they are definitely different from even variable or fixed rate annuities.  Let us first look at what an annuity is.  An annuity is the opposite of life insurance.  Life insurance is accumulating a principle sum, which is due upon the death of the insured.  An annuity is the exact opposite – it is the liquidating of a principle sum, regardless of how it was accumulated.

Life insurance is usually accumulated by periodic payments, and at the end, it is given to the beneficiary.  Annuities are usually accumulated this way, too, because not enough people have enough money or are willing to put up enough money to pay it in a single premium.  Annuities can, however, be bought from anywhere from single premiums to periodic payments, where they resemble life insurance.  However, unlike life insurance, at the end of the accumulation period, an annuity is liquidated over the course of the beneficiary or beneficiaries’ life or lives.

When someone does wrong to another and is sued in court, sometimes the court will award a structured settlement.  A structured settlement is a stream of periodic payments which either replace or add to a lump sum; this is designed to compensate the person for the wrong done against them, such as their injuries.  Think of them somehow like annuity loans and they are getting paid back.  Sometimes there is no way to measure how much income a person will need for the rest of his or her life, so a lump some may be inadequate.  So, a life annuity is often used to cover the person until the day he or she dies.

This started in the 1950’s, but it became commonplace in the 1970’s.  Workers compensation, general liability, defective products, automobile accidents, and medical malpractice were the common reasons for these structured settlements.  An annuity is usually bought to make this stream of payments.  This is where the name “structured settlement annuity” comes from.

Structured settlement adjusters work with defense attorneys or liability claims adjusters to find the appropriate settlement amount and settlement annuity.   This will cover the amount of cash needed for immediate needs, to include medical expenses, legal fees, custodial services, rehabilitation costs, etc., as well as replacement income from not being able to work.

Structured settlement annuities are great ways to settle claims, because once the annuity is bought, the liable party no longer needs to play an active hand in watching over the injured party; without structured settlement annuities, periodic payments every month would be difficult to manage.  And after you have a structured settlement, you can look into selling annuity if you need the cash sooner.


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