Structured settlements and annuity payments are both means used to pay out money. The main difference is why they are created and the payment structure. If you’re involved in a personal injury claim, it’s a good idea to understand the foundations if it comes up in your case.
What is a Structured Settlement?
A structured settlement is a lump sum payment paid out in agreed-upon installments after a court process. Often used in personal injury law, this is frequently a result of a payment that gets settled before going to court. In some cases, it can also be the result of losing a case.
It is compensation paid to right a wrong when a person has caused harm to another. You may find structured settlements in personal injury law, wrongful death cases, or workers’ compensation cases.
Both the defendant and the plaintiff will agree to terms such as when payments are made, how often payments are made (often monthly or yearly), and the amounts.
What is an Annuity?
Annuities are periodic payments and are a financial vehicle used by life insurance companies and investment firms. An annuity is an insurance contract that provides an income stream for a set period of time or a person’s lifetime.
A person will invest money into a financial product in exchange for future payments over time. It is a contract between the annuity buyer and an insurance company.
Annuity contracts provide financial security and are often used to fund a person’s retirement or for long-term disability care.
The Difference Between a Structured Settlement and An Annuity
A structured settlement is a legal tool and an annuity is a financial tool. There is some flexibility to how structured settlements can be set up to make payments but annuities are generally predetermined. How they are funded is usually different as well. Structured settlements are payments made from one person to another as compensation and annuities are often funded by the person that will also receive the payments.
Selling Structured Settlements
A structured settlement can be sold if you decide at a later date that you want a lump sum. Generally, an insurance company may purchase it from you and the buyer would begin receiving the payments. The insurance company would pay you a lump sum at a reduced rate of what the total payments would be.
Seek Professional Advice
A structured settlement can be set up as an annuity but not all annuities are structured settlements. Structured settlements can work well in cases involving minor children or when there is a large sum of money to be paid out. There are implications for income taxes, accrued interest and administrative fees so you’ll want the advice of a financial professional as details can become quite complex.
Although you should seek advice from a financial professional for your finances, it’s also important to have a lawyer that understands which financial tools can be used in a settlement or ordered by a court. Your personal injury attorney will ensure your interests are looked after when drawing up any settlement agreements. Contact Jeffrey H. Penneys if you need a personal injury lawyer anywhere in Pennsylvania that understands pay-out options.
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