What Is a Structured Settlement, Anyway?

by TTMK on December 14, 2013 · 0 comments

Structured settlements are essentially court-ordered payment programs. They’re generally the result of a lawsuit against a company for one reason or another. Personal injury claims, auto accident claims, product liability claims and other types of suits usually result in a structured settlement – assuming you win the court case. They might represent an actual win in the courtroom, or it might be the result of a settlement so the company doesn’t have to go through the legal process in the first place.

What’s Not a Structured Settlement?

There are a wide variety of financial tools that resemble structured settlements, but really aren’t. For instance, the payments from a life insurance policy on the death of the policyholder to the beneficiary are set up like a structured settlement, but this is actually a type of annuity. Workers compensation claims often result in settlements, but these are handled separately under the law and aren’t lumped in with other similar types of settlement.

Why Are Structured Settlements Issued?

A wide range of different reasons can be used for the issuance of a structured settlement. For instance, often, the structured payment format is necessary because settlements are so large that they would bankrupt the company paying out if the money was required all at one time. As mentioned earlier, the settlement might be issued because the company doesn’t want to go through the legal process. However, the most common reason has nothing to do with the company paying out and everything to do with the person receiving the settlement.

Once upon a time, structured settlements weren’t really that widely used. Claimants were often awarded their settlement in a lump sum (when possible). However, over time, officials noticed something. Those claimants who were awarded a lump sum often ended up in a worse financial situation than before in a very short matter of time. They had no idea how to manage their money, and they spent it frivolously. To combat that trend and to ensure that claimants were able to keep their money protected, the government decided to mandate structured settlements – what once might have been paid out immediately was broken up into smaller payments over a long period of time. The individual still received the same amount of money, it just wasn’t all at once.

The Problem Here

If you’ve been following along, you probably have already realized the problem with this situation. While the thought behind the structuring process is logical, it’s not applicable to all situations. A judge’s best discretion can only go so far, and many people find that they face increased costs of living, higher medical bills and other costs soon after receiving their structured settlement. The money from the settlement isn’t enough to offset those costs, either.

When this situation arises, it’s possible to sell a structured settlement and receive a lump sum. However, settlement holders are cautioned. It’s important to work with a seller services provider to help you navigate this murky world and get the most money possible for your settlement.

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