What Is a Structured Settlement?
Despite all the legal language around them, structured settlements are simple. Many lawsuits result in someone or some company paying money to another to right a wrong. Those responsible for the wrong may agree to the settlement on their own, or they may be forced to pay the money when they lose the case in court.
If the settlement is small enough, the wronged party may have the option to receive a lump sum settlement. For larger settlements, however, a structured settlement annuity may be arranged.
In this case, the at-fault party puts the money toward an annuity, which is a financial product that guarantees regular payments over time from an insurance company.
The structured settlement agreement details the series of payments the person who was wronged will receive as compensation for the harm done to them. Structuring the money over a longer period of time offers a better future guarantee of financial security because a single payout can be spent quickly.
Structured settlements gained popularity in the 1980s after the U.S. Congress passed the Periodic Payment Settlement Act. According to the National Structured Settlements Trade Association, almost $6 billion in new structured settlements are issued annually.