A structured settlement is an agreement between a claimant and a defendant wherein the latter is obliged to pay the claimant compensation over a personal claim. The total amount may be too exorbitant for the defendant to pay as a lump sum, and thus it is decided after a formal agreement to be paid in the form of an annuity.

There are different types of payment options in a structured settlement, and these mainly depend on the needs of the payee. The options pertain mainly to the timing of cash flow- yearly or monthly, and also whether the money is sent directly to the payee, or to a trust set up for this purpose, or transferred electronically to the payee’s account.

The most common mode of payment is the lifetime annuity that provides the payee a structured income for the duration of his/her lifetime. For payees with special funding requirements, a differed lump sum payment works well. There are other types of payments like step annuities, percentage increase annuities, period certain annuities etc, each with a specific payment option for amount and duration.

Depending on the financial needs of the claimant and his/her future requirements, the two parties can find a payment plan that fits well for them.

Structured settlements first came into being in the 1970s in the United States and Canada and is now a part of statutory law of several common law countries that include Australia and England too. Structured settlement is also called as ‘periodic payment’, and the trial ruling passed in a claim case referred to as ‘ periodic payment judgment’.

The overall payment system in such a case can be organized in a variety of ways that take care of the needs of the person receiving the claim and also protect him/her from fluctuating financial trends. The terms of agreement regarding the periodic payment may include a simple yearly payment or more complex arrangements like an initial lump sum amount followed by monthly installments or deferred payment options. There are also provisions that take care in case of death of the insured.

The most obvious advantages of structured settlement include having a source of income and an ease in management of taxes. Structured settlement can be a useful feature depending on the needs of the claimant.

When deciding to sell your structured settlement to a company in order to receive some lump sum cash, do consider some factors carefully before actually doing so.  A periodic payment module guarantee some level of financial security and tax benefits, and the decision to sell it must be taken with care.

Buying property, car or paying off a mortgage are common reasons why people choose to sell their settlement. Some people consider investing the cash obtained from the settlement in stocks or bank. If cashing out the settlement allows you to buy a house, it could well be worth it. Similarly, talking to a broker regarding the stock options would help decide if it is a viable option or not.

There is always a risk in losing some money when selling; this is because the deal needs to cover for the risks involved in the purchase for the buyer. If the losses are considerable in comparison to a periodic payment, it might not be worth it. Also, every buying party will try to buy out the settlement at the lowest payout possible.

Thus, selling a stable settlement needs great deal of thought and the claimant should feel happy with all conditions before committing to sale.

• Security for the Old- for senior citizens, this method is beneficial as it guarantees financial security in trying times. Apart from this, receiving smaller amounts of cash on  a regular basis as compared to a lump sum money also ensures physical security against scheming people who could try to con the aged out of their deserving money.
• Worry-free Source of Money- Those who opt for structured settlement need not worry about elaborate and often confusing investment strategies. Handling a huge amount of money is no easy task, and often people with less know how about finance may find themselves unsure how to tackle the issue. In contrast to this situation, agreeing to receive periodic payments can ease these worries and the claimant can adequately plan its usage.
• Minimized Costs- a structured settlement can ensure that a mutual agreement is reached with minimum loss of time and risk. Often, a defendant visualizing a possibility of a greater loss if the case goes to trial and the occurrence of a greater liability offers a structured settlement to the claimant o lower his/her cost.

Thus, a structured settlement is quite profitable in many respects to both the claimant as well as the defendant.

Claiming a monetary compensation for loss or injury in a particular situation is very commonly settled through a structured settlement. This system of payment works well generally for both the defendant party and the claimant. While there are many benefits of settling a claim through a structured settlement, it has its downside too.

• A structured settlement once decided is a fixed feature and is impervious to changes later. This can be difficult for the claimant whose life situation may vary in times to come. A person making injury claim may develop unforeseen medical complications in later years which would not get covered by the settlement.
• A structured settlement can take as long as six months to come to realization. The documentation,the legal hassles involved and supplementary attorney fees can prove to be a tedious affair for some.
• This arrangement of receiving periodic amounts, often extending to a lifetime, leaves the claimant feeling trapped with no money to make large scale purchases like home, car etc.

These could be some reasons why people choose to sell their life annuities and break away from the conventional structural settlement.

How It Works?

There are companies and financial institutions that purchase structured settlement from claimants; they do so for the purpose of investment. Some people having substantial settlements may also sell part of their whole structured settlement to a company when in need of a quick cash.

When to Opt for Cash for Structured Settlement

Upon winning a lawsuit, a claimant is awarded a substantial amount of money to be paid in form of a life annuity. Rather than waiting to receive money in installments and on the terms of the defendant party, the claimant may like to obtain some bulk money upfront. Winning a large draw prize also more often than not leads to a payment in parts situation,and the winner can opt to sell the annuity and obtain cash for the annuity.

Opting for cash in lieu for the original structured settlement can be beneficial to a claimant depending on his/her life’s situation, though all pro and cons must be looked at beforehand.