Structured Settlement Annuity and the benefits of having one
Structured Settlement Annuity - Why they are important to have
Structured settlement refers to a negotiated insurance or financial arrangement where the claimant agrees to settle personal injury tort by receiving payment in the form of periodic payments instead of a lump sum. Structured settlement can either be demanded by the plaintiff or offered by the defendant.
Ultimately both plaintiff and defendant agree. A structured settlement is mostly used in injury or product liability cases. This is because it allows the parties involved to reduce legal and other costs by avoiding going to a trial. The periodic payment can be funded through the purchase of annuities. Structured settlements have requirements such as spendthrift and income tax. When structured settlement is incorporated in a trial judgment, it is referred to as structured judgment.
Situation in which people may Receive Structured Settlements
Personal Injury
When a person is armed wrongfully, he or she files a lawsuit seeking compensation from the person who has caused the harm. Money that is received helps the recipient to settle medical costs and other expenses during the medication period.
Wrongful Death
A structured settlement is used to compensate the family of a person whose death was caused by someone else wrongfully. The family receives tax-free payment which is used to replace the loss of income formerly earned by their deceased loved one.
Worker’s compensation
When workers are injured at work, the company caters for their wage replacement and medical treatment during the period in which the worker is unable to work.
Advantages of Structured Settlement
·Structured settlement yields more compared to lump-sum because the interest of your annuity may increase over time.
·Unlike mutual funds, stocks and bonds, structured settlement are not affected by fluctuations in the financial market.
· Spreading the payment over a given period helps the recipient to avoid extravagant purchases. Also, it guarantees future income which helps the recipient to cater for all the needs in case there is a need for long-term medical care.
· Structured settlement payment is tax-free.
·Payment can be scheduled for any length of time. They can begin immediately or after many years.
The benefits might increase, or one might receive a lump-sum payment.
Disadvantages of Structured Settlement
· Some parts of the settlement are taxed such as punitive damages and attorney’s fees.
· When all the terms are finalized, there are no changes which can be done. If the overall economy changes, you cannot renegotiate the terms. Thus, it is always advisable to carry out extensive research before making the final decision.
· When the contract is signed, funds are not immediately available in case of an emergency. Hence, the recipient cannot invest in investments which have a high rate of return.
· In some of the states, insurance companies do not disclose their costs making it hard to establish the right structured settlement annuity. Without the right information, the recipient might lose a significant amount of money.
· Getting involved in structured settlement without selling any payment will cost you money. For instance, you will need to pay for IRS penalties and surrender charges if you withdraw cash before 59 years.
Before you decide to choose structured settlement annuity, you should be ready to discuss all other available options with a certified public accountant, personal injury attorney and tax attorney to fully explore the pros and cons of the settlement or verdict.
The end result is to ensure that you have selected the best option for your compensation.
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