Structured Annuity

Annuities are basically investment products that work like old-time corporate pension plan. The two major types of annuity products are immediate and deferred, but there are other options available to the consumers as well, like structured annuity, workers’ compensation, and single premium. For a long time, and even today, the plaintiffs who won compensatory damages, received a one-time lump-sum settlement amount, and though that helped in meeting the cost of treatment, and also the trauma caused due to pain and suffering, but many of the victims lacked the know-how required to skilfully manage such large amounts. So the structured annuities settlement was bought out by passing The Periodic Payment Settlement Act.

structured annuity

There are specialised consultants that facilitate the structured annuity settlement. They also assist in designing and negotiating this structure. There are multiple benefits of choosing this kind of settlement to both the claimant and the defendant. For the claimant, the benefits are that the payments are specifically tailored to meet the needs of particular financial needs over a defined period. They are also designed to assist the victim in meeting their current and future needs. It also helps in promoting security by providing the dependability of a highly rated financial institution. The advantages to the defendant are that it leads to faster settlements, also reduces cost of trial, avoids trials altogether at times, may allow tax deduction.

The structured annuity has been rising into the popularity charts as they often come with no risk and the rates of return are anything between 4% to 7%. Here the risk is actually nil or quite low. Also, the structured annuity settlement helps in making sure that the claimant does not recklessly spend a large sum of money they receive from legal settlements. There are many other benefits of receiving such a settlement, like in the event of the premature death of the recipient, the contracts designated beneficiaries will continue to receive any future guaranteed tax-free payments. The payment can be scheduled for almost any length of time and can also begin either immediately or even be deferred for as many years as possible; it all depends on the person receiving it!

The structured annuity settlements are guaranteed by the insurance company that has issued the annuity, and hence, they are not dependant on the financial market fluctuations. The money received, or the interest earned is exempt from federal, state and local income taxes, helping in increasing your savings. There are some cons too, like funds are not immediately available and accessible in case of an emergency, and the beneficiary is unable to invest the lump-sum pay-out in other investments that carry higher rate of returns. Tapping into your structured settlement without selling payments will cost you money. You lose your lump-sum payment option when you buy an immediate annuity or if you annuitize your deferred annuity contract.

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