Understanding Structured Settlement Annuity Benefits

structured settlement annuity

Is a structured settlement annuity your best option for cash?

A Structured Settlement Annuity payment is often sought as a result of a personal injury claim or worker’s compensation insurance claim.  When individuals are involved in accidents that result in loss of life, total permanent disability insurance claim, or otherwise they may seek monetary damages from the responsible party.  Once a settlement agreement is reached with the insurance company or individual or through court action there may be a lump sum payment.  This payment is supposed to be paid to the claimant (person pursuing damages).  The income received as a part of the agreement typically creates tax problems for the person filing either the loss of use insurance claim, car injury claim, or accident insurance claims.

According to the National Structured Settlement Trade Association, investment earnings from a lump sum payment may be fully taxable at personal income rates.  This means that taxes could erode a significant portion of a settlement payout.  A structured settlement annuity can offset these taxes.  It provides a tax free benefit payment in regularly scheduled intervals as a means of settling a wrongful death, physical injury, or worker’s compensation claim.  The Internal Revenue code allows for such structured annuities and annuity payments.

Advantages of a Structured Settlement Annuity Payout

Lump sum payouts of insurance or settlement claims can create additional problems besides taxes that structured settlement annuities attempt to solve.  When a one-time payment is given to a claimant, there is no automatic way of setting up payments to other beneficiaries.  If death occurs to the original claimant there is no assurance that the claimant’s named beneficiary will receive any amount left over from the settlement after their death.  With a structured settlement annuity a named beneficiary can be guaranteed an income stream regardless of the original claimant’s health after the initial settlement.

Flexibility is another key in structured settlement annuities.  Customized payment streams can be set up allowing for increased or decreased payments over time.  Setting an annuity up with inflation and increased costs of living with age is easily managed with almost unlimited options.  Lifelong payments can give financial security to a claimant if they choose to have the annuity set up that way.  When a person sits down with a structured settlement annuity company they can plan for payments that will be needed in the future at specific times also.  Home purchases, college tuition, or medical expenses are examples of single lump sum payouts that can be scheduled in advance as part of the annuity.  Think of a structured settlement annuity as an income protection allowance.

Selling An Annuity

cash out structured settlement annuity

A structured settlement annuity gives income protection.
Photo courtesy: CBS News

Selling annuities has become big business in recent years.  Often times people will set up a structured settlement annuity only to later change their mind and want to trade up front cash for annuity payments over time.  Basically, this is a reversal of the structured settlement in the first place.

There are companies that will effectively buy out the rest of your annuity cash payments.

In exchange they will give you money in an amount based on the present value of future payments.  These annuity buyers are in essence gaining an interest rate on the money they loan you by waiting for a guaranteed payment from the settlement over time.  If you are thinking of selling annuity payments for a one-time cash payout, check out annuity cash out.

Receiving a structured settlement quote can be fairly easy.  Visit income protection compare or insurance compare for more information or to buy annuities.

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