How Do Structured Settlements Work?
Sometimes when a lawsuit is settled, the plaintiff agrees to be paid through a structured settlement instead of in one lump sum. A structured settlement works by paying out the total settlement amount owed in increments over a period of time through an annuity. The amount of each payment and the length of time over which it will be paid out will be determined by several parties:
- Plaintiff: the person who was wronged and is seeking compensation
- Defendant: the person or company who is accused of doing wrong
- Qualified assignee: a company that, in some instances, assumes the defendant’s payment responsibilities and has experience working with civil cases and structured settlement payouts
- Insurance company: the company who will pay out the settlement to the plaintiff
While the concept of how a structured settlement works is relatively simple, the process through which one is awarded to a plaintiff is slightly more complex. Here, we break down the process of how someone might end up with a structured settlement.
What Is the Process for Being Awarded a Structured Settlement?
- Terms of the settlement are decided. Once it is determined that the plaintiff is owed compensation, the exact terms must be decided upon. While the way that a structured settlement works will be the same, the lawsuit payout options can vary widely. The plaintiff will consider their current and future needs. For example, there could be a larger initial payment and smaller payments afterward. It could be paid out over several years, or for the rest of the person’s life. Once the parties agree to the terms, the defendant will give the money to the qualified assignee to purchase the annuity.
- Annuity is purchased from an insurance company. The qualified assignee will set up the annuity to match the terms which were agreed upon. Once these terms for how the payments will be distributed are set, they cannot be changed, regardless of how the plaintiff’s needs may change in the future. It’s worth noting that these payments are set up with the best intentions of the plaintiff in mind. However, over time, the plaintiff’s needs and financial situation may change, leading him or her to seek out a lump sum payment.
- Plaintiff begins receiving payments from the settlement. At the designated time, the plaintiff will receive the payments from the insurance company, as specified in the contract. For all intents and purposes, the plaintiff’s payment schedule is more or less “set in stone.” This is not the most convenient situation for many – especially if the plaintiff’s financial future is tied up in the structured settlement payout schedule.
Since the way that structured settlements work means that the contract cannot be altered, the only way that someone would be able to get money from their settlement sooner would be to sell some or all of their structured settlement payments.
Understanding Your Structured Settlement Annuity Contract
If you have received or inherited your structured settlement from a family member, then you may not fully understand the terms of your contract. Depending on how the contract was set up, you might be receiving the same payment each month, or the amount of each payment may change over time. It’s also possible that you will not start receiving payments until a certain point, such as when you reach retirement. A financial professional should be able to help you understand how your structured settlement works.
If you’ve determined that your structured settlement doesn’t fit your current needs and you would like to sell your payments, J.G. Wentworth can help. Contact us today for a free, no-obligation quote.
The above is some basic information on the topics and is not a complete guide. J.G. Wentworth is a purchaser of assets and does not provide legal, tax, or financial advice. Please contact independent professionals for legal, tax and/or financial advice.