Get Free Comparison Quotes for Structured Settlement Annuities
A structured settlement annuity provides a guaranteed, often tax-free stream of income paid over time to individuals who have won a legal settlement (such as a personal injury or wrongful death claim), protecting them from the risk of spending a lump sum too quickly. Because payment schedules, inflation adjustments, and life-contingent payout terms vary significantly depending on how the contract is designed, comparing your options side by side with a qualified broker is critical to securing your long-term financial stability. Fill out the short form below to request your free, customized comparison quotes, or call us directly at 770-755-1565 to speak with an independent licensed broker right now.
What You Need to Know About Payout Options, Taxes, Buyers, and Alternatives
Structured settlements can be confusing because they blur the line between insurance, investments, and legal settlements. Below is everything you need to know before selling, buying, or accepting a structured settlement annuity.
Wrong Way? Note: This guide covers legal payouts from lawsuits and injury claims. If you are instead looking for a retail investment product that offers stock market growth with a built-in downside shield, read our master guide on how a structured annuity (also called a RILA or buffered annuity) works.
Get the cash you need from your legal claim now—let us help you secure structured settlement or pre-settlement funding at the lowest rates for free.
The Basics Of Structured Settlement Annuities
A structured settlement is a financial arrangement in which a legal settlement is paid out over time through periodic payments rather than as a lump sum. These payments are typically funded by an annuity purchased from a life insurance company. Structured settlements are designed to provide long-term financial security, making them a reliable option for recipients who need a predictable income.
Pro Tip: Structured settlements are part of a larger category of payout options designed to prevent recipients from outliving their funds. Before committing to this specific path, you should understand why this is the most common settlement compared to traditional pensions or lump-sum payouts.
How Structured Settlements Work
When someone wins a legal settlement, a structured settlement provides their payout as periodic payments over time rather than a lump sum. Here’s how it works:
- Settlement Agreement: The terms of the structured settlement, including payment amounts, schedule, and duration, are outlined in the settlement agreement.
- Funding: The defendant (or their insurer) funds the settlement by purchasing an annuity from a life insurance company. The annuity guarantees the payments.
- Payment Schedule: Payments can be customized to meet the recipient’s needs, such as monthly, annually, or lump sums at specific intervals.
- Tax Benefits: Payments for physical injury or wrongful death cases are typically tax-free.
- Long-Term Financial Security: Structured settlements provide stable income over time, helping winners avoid spending their entire settlement quickly.
This arrangement ensures winners receive a predictable and secure income tailored to their needs.
Why Are Structured Settlements Unique?
Structured settlements offer several benefits that set them apart from other financial arrangements:
- Guaranteed Income: Payments are predictable and often guaranteed for a specific term or for the remainder of a person’s lifetime.
- Tax Advantages: Many structured settlements, particularly those tied to personal injury or wrongful death, are tax-free.
- Customizable Payment Plans: Payment schedules can be tailored to meet the recipient’s needs, such as medical expenses, education, or retirement.
- Protection Against Mismanagement: Spreading payments over time reduces the risk of spending the settlement all at once.
- Inflation Adjustments: Indexed payments can help maintain purchasing power over time.
Pros and Cons of Structured Settlements
Pros:
- Tax-free income in many cases.
- Contractually guaranteed payments.
- Protection against mismanagement.
- Flexible designs (life-contingent, guaranteed, lump sum + periodic).
Cons:
- Poor liquidity—hard to access early.
- Discounts when selling payments can exceed 30%.
- No inflation protection.
- Limited control once terms are set.
Who Needs Structured Settlements?
Structured settlements are ideal for individuals who:
- Have Long-Term Financial Needs: Recipients of personal injury or wrongful death settlements often require a stable income for ongoing expenses.
- Want Predictable Income: Those needing regular education, retirement, or medical care payments benefit from structured settlements.
- Seek Financial Stability: Structured settlements protect recipients from mismanaging large lump sums.
- For Minors or Vulnerable Adults: Providing gradual payments ensures financial resources last as intended.
Helpful Tip: These settlements are often used to secure the financial future of a minor after an injury. Learn more about how structured settlements for children can provide tax-free income for college and beyond.
Who Doesn’t Need Structured Settlements?
Structured settlements may not be suitable for individuals who:
- Require Immediate Access to Cash: Those with urgent financial needs might prefer a lump sum payment or selling part of their settlement. See pre-settlement funding if you don’t have a choice in how you receive the settlement.
- Prefer Investment Flexibility: Individuals comfortable with investing may find a lump sum more advantageous for potentially higher returns.
- Have Small Settlement Amounts: For minimal settlements, periodic payments may not be practical.
Structured Settlement vs. Lump Sum
- Lump Sum: Immediate access to all funds, but higher risk of overspending and full taxation on gains.
- Structured Settlement: Predictable, steady income, often tax-free.
Best for a Lump Sum: Individuals disciplined with their finances who want to invest or cover large expenses.
Best for Structured Settlement: People who need lifetime security and guaranteed income.
Options for Structured Settlements
Structured settlements offer a range of payout options:
- Fixed Payments: Equal installments over a specified period.
- Indexed Payments: Adjusted periodically for inflation.
- Deferred Payments: Begin at a future date to align with anticipated expenses.
- Life-Contingent Payments: Cease upon the recipient’s death.
Options for Structured Settlement Holders
- Keep the Settlement – Collect tax-free payments as scheduled.
- Sell the Settlement – Transfer part or all of your payments to a buyer in exchange for immediate cash (usually at a steep discount).
- Partial Buyout – Sell some payments while keeping the rest for future income.
- Use Payments for Big Purchases – Courts sometimes allow lump sums for buying a home or car.
Tax Treatment of Structured Settlements
- Personal Injury Settlements: Payments are usually tax-free.
- Non-Qualified Settlements (employment, discrimination, divorce): Payments may be taxable as ordinary income.
- Selling a Settlement: The lump sum you receive is taxable.
What Happens If You Die With a Structured Settlement?
- If payments are guaranteed, your beneficiaries continue to receive them.
- If payments are life-contingent only, they stop at death.
- Some contracts combine both.
Selling a Structured Settlement
Selling your structured settlement payments can provide a lump sum if you need immediate funds. Common reasons to sell include:
- Paying off high-interest debt
- Covering unexpected medical expenses
- Funding a significant purchase like a home or car
- Preparing for retirement
Selling your settlement requires court approval to ensure the transaction serves your best interests. Companies like The Annuity Expert can provide free quotes to help you evaluate your options.
Structured Settlement Vs. Other Annuities
Structured Settlement:
- Provides long-term financial security to individuals who have received a large sum from a lawsuit.
- Ensures that the recipient has a stable income over time to cover ongoing expenses.
- Often used in cases involving personal injury, medical malpractice, or wrongful death.
- Payments can be structured to increase over time, providing additional income as the recipient’s needs change.
Annuity:
- Provide a steady income stream during retirement.
- Help manage longevity risk by ensuring that the holder does not outlive their savings.
- It can be used as a tax-deferred investment vehicle.
Benefits
Structured Settlement:
- Tax Advantages: Payments from a structured settlement are generally tax-free.
- Customizable: Payment schedules can be tailored to meet the recipient’s needs and can include increases at future ages.
- Financial Security: Ensures a steady income over a specified period, reducing the risk of mismanagement of a lump sum.
- Irrevocable and Court-Ordered: Provides a legally binding guarantee of future payments, offering strong financial security.
Annuity:
- Guaranteed Income: Provides a predictable income stream, which can be especially valuable in retirement.
- Tax-Deferred Growth: Earnings on annuities grow tax-deferred until withdrawal.
- Variety of Options: Different types of annuities (fixed, variable, indexed) offer various features and levels of risk.
Drawbacks
Structured Settlement:
- Lack of Flexibility: Once agreed upon, the terms of a structured settlement are typically fixed and cannot be changed.
- Inflation Risk: Fixed payments may lose value over time due to inflation.
- Limited Access: The recipient cannot access the lump sum, limiting flexibility in case of unexpected expenses.
Annuity:
- Fees: Annuities can come with high fees and surrender charges.
- Complexity: Some annuities, especially variable and indexed annuities, can be complex and difficult to understand.
- Lower Liquidity: Accessing funds from an annuity can be restricted and may involve penalties for early withdrawal.
Comparison Table
| Feature | Structured Settlement | Annuity |
|---|---|---|
| Purpose | Long-term financial security from legal settlements | Retirement income and tax-deferred growth |
| Tax Treatment | Generally tax-free | Tax-deferred until withdrawal |
| Payment Flexibility | Limited access to a lump sum | Various options (immediate, deferred, fixed, variable, indexed) |
| Inflation Protection | May not protect against inflation | Options available (e.g., inflation-adjusted annuities) |
| Access to Funds | Can have high fees | Varies by product; early withdrawal penalties may apply |
| Customization | Highly customizable to meet specific needs | Customizable within the product type |
| Fees | Typically lower fees | Can have high fees and charges |
| Financial Security | Provides stable, guaranteed payments; court-ordered and irrevocable | Provides guaranteed income but varies by type |
What If You Need the Cash Now?
If you want to sell your structured settlement:
- You’ll be working with a structured settlement annuity buyer (often called a factoring company or specialized broker).
- The transaction must be approved by a court.
- You’ll only receive a portion of the total value—this is referred to as a discounted lump sum.
- Expect legal fees, administrative costs, and time delays.
Additional Protection: Insurance Solutions That Pair Well
- Long-Term Care Insurance – Protects settlement income from being consumed by nursing care costs.
- Annuities with Guaranteed Lifetime Withdrawal Benefits (GLWBs): Provide more flexibility and better death benefits than structured settlements.
- Life Insurance with Settlement Options: Can structure death benefits as lump sums or installments.
- Disability Insurance: Protects income if injury or illness prevents work, rather than relying solely on lawsuit settlements.
Why Choose The Annuity Expert?
The Annuity Expert specializes in providing tailored solutions for structured settlement recipients. Whether you’re considering selling your settlement, exploring payment options, or purchasing a structured settlement, we offer free quotes and expert advice to help you make informed decisions. Our team compares top providers to ensure you get the best rates and terms.
Expert Advice: These contracts are permanent and cannot be changed once the court approves them, making the initial design critical. To ensure your payments are structured for maximum tax efficiency and security, we recommend you get a structured settlement quote and a free professional review of your payout options.
Book A Free Consultation
Get help from a licensed financial professional. This service is free of charge.
Let Us Answer Your Questions
Not quite ready for a meeting, but you have a question that needs answering? We’re happy to help. Leave an inquiry below, and one of our staff will respond via email.
Questions From Our Readers
Why must structured settlements be court-approved?
The Federal Periodic Payment Settlement Act of 1981 required court approval for all sales of structured settlements. This act ensured that the consumer’s best interest was prioritized and limited any party from taking advantage of the settlement recipient.
How are structured settlements taxed?
Regular payments from structured settlement annuities are tax-free.
Can structured settlement payments be sold?
Structured Settlements can be sold, and there is no set formula or standard for selling the payments. Reach out to us for free guidance.
What happens to a structured settlement in a divorce?
Each state divides assets using an equitable or community property approach. If the state utilizes the equitable distribution method and the settlement was obtained before marriage, it will likely be retained by the settlement’s owner. However, if the state takes the community property route, it can divide the settlement regardless of whether it was received before or during the marriage.
Can a structured settlement be inherited?
Since the structured settlement annuity is an income annuity, inheritance is treated as such. There is typically no death benefit if the annuity is set up for life contingent payments (life only, joint and survivor). This exception would apply if a guaranteed term (single or joint life with a specified period) were put into place. If the settlement is structured to pay over a guaranteed fixed period, the annuity can usually be inherited for the remainder of the guaranteed installments. Inherited structured settlements should still provide tax-free payments to the beneficiary. Finally, a commutation rider on some settlements allows the inherited annuity to be paid out in a lump-sum payment, so check on that as well.
Which insurance companies sell structured settlement annuities?
Are structured settlement annuities protected and insured?
Structured settlement annuity contracts are protected by your state guaranty association, in which life insurance companies must set aside a reserve to the SGA in case of company insolvency.
Can a structured settlement be changed?
Yes, a structured settlement can be changed under certain circumstances. Depending on the type of agreement, the courts may permit additional funds or an extension of payment terms. However, any adjustments must adhere to the terms of the initial agreement.
How does a structured settlement annuity work?
A structured settlement annuity is a payment plan for long-term financial security. The payments are issued in fixed amounts over a predetermined period of time and can be customized according to an individual’s needs. This type of annuity provides guaranteed payments for a certain length of time or for the remainder of one’s life, depending on the contract. Funds from the annuity may also be invested to generate additional income.
Do structured settlements earn interest?
Yes, structured settlements can earn interest. The interest rate may be fixed or variable, depending on the settlement terms. Generally speaking, a higher interest rate is associated with longer-term payments, and a lower interest rate is associated with short-term payments. Other factors, such as the type of investments and tax considerations, can also affect the amount of interest earned.
How can I access all the money from a structured settlement?
You can sell your future payments to a settlement purchasing company to get a lump sum from a structured settlement. However, it’s important to note that this process typically involves receiving less than the total value of the payments due to discounting by the purchasing company. Such transactions usually require court approval to ensure the sale is in your best interest.
I’m having trouble getting my structured settlement payment from a recent insurance company buyout. What should I do?
If you’re having trouble receiving structured settlement payments after an insurance company buyout, contact the attorney who handled your settlement. They can help ensure your settlement terms are honored. Reach out to the new insurance company with your settlement details and keep records of all interactions. If the issue persists, consult a legal expert in structured settlements or insurance disputes. You can also seek help from your state’s insurance commissioner or a consumer protection agency. Stay proactive in resolving the matter.
Do structured settlements typically include life insurance?
No, structured settlements typically do not include life insurance.
Can you take a loan against a structured settlement?
No, you cannot legally borrow against it due to restrictions in the annuity contract and court protections.
Can you cancel a structured settlement?
Not without court involvement. Most are irrevocable and cannot be changed without a judicial ruling.
What is the benefit to the plaintiff of a structured settlement?
Guaranteed, tax-free income designed to match future financial needs with zero investment risk.
Why am I getting calls from structured settlement companies?
Your payment rights may be listed in public records, which can lead to unsolicited offers to purchase your future payments.
What is the downside of structured settlements?
Inflexibility and loss of value if sold early.