Structured Settlement Annuity

Structured Settlement Annuity

What is it and how it works?

To illustrate using an example we will consider if someone was injured in a car accident. The injured party can sue for financial damages in a court of law. The injured party is the plaintiff in the case and the individual responsible for the accident is the defendant. However, as most people have auto insurance the real defendant in the case would be an insurance company. So you have an injured party suing an insurance company for cash. The insurance company might agree that their client was at fault and they agree to pay out a settlement. The injured party (now the “recipient”) may have the choice of selecting a lump sum settlement or a structured settlement annuity. If the recipient opts for a lump sum they get the entire amount of the settlement in cash. If they choose a structured agreement – they will be paid out in increments over time.

The settlement recipient might choose a structure agreement for several reasons but the design of this type of agreement is to ensure the injured party (who may not be able to work) has an ongoing income to meet their financial obligations for many years to come. An unfortunate but true situation is that many people that opt for one time lump sum payment up front end up burning through the cash, spending it leaving them broke and unable to work.

The annuity is set up through another (second) insurance company that just happen to be the type of organizations that sell and administer annuities. The first insurance company that is the defendant in the case will purchase an annuity via the second company. The annuity then pays the recipient out over time as pre determined by the settlement agreement. Payments are usually made monthly or quarterly and can last anywhere form a few years to many years (20+) or for life. It all depends on the specifics of the case, injury, settlement and agreement.

So while a structure agreement is initially set up with the best interest of the injured party at the time – as we all know circumstances can change in ones life that can change the needs of the recipient.

In this case a structure agreement in and of itself is not flexible – you have no ability to change the terms of the original agreement to accelerate payments or cash out. Do to this fact a new industry was born to help those in this exact situation. For those that have a settlement annuity and have some change in their life circumstances that requires them to need a larger sum of cash then their payments are providing.

To learn more about the process or reasons for selling settlement payments return to the articles section and read more. Or if you want to talk to an industry expert, dial the 800# on the site or submit your information into the form and a representative will call you.