A structured settlement annuity is an agreement between two parties. The agreement is made because money is owed by one party who cannot pay in a lump sum. An insurance agency is thus used to offer the annuity between the two parties. Usually an insurance agency offers annuity settlements as a predetermined amount of money which is paid over a fixed duration of time.
A structured settlement annuity is set up when one person or party owes another party funds. Usually for a reason such as a law suit settlement or an insurance settlement. Settlement annuities are essentially contracts that are offered by insurance companies. They are designed to make regular payments to their holders for a set period of time in specific intervals. This could be any amount of time or even for life. Receiving income from a structured settlement annuity, as opposed to one large sum, allows the recipient to thus avoid having to pay large medical bills upfront.
An annuity structured settlement is a financial or insurance arrangement, which is made to resolve a personal injury, by receiving payments on an agreed schedule, as opposed to a lump payment. For example, in the event of a car accident, party 1 will sue party 2 for damages or personal injury. The insurance company of party 2 will then organize a structured annuity settlement to provide financial compensation to party 1 over an extended period of time. The duration of settlement annuities is then determined through the courts or representing lawyers in the case.
Each settlement may be paid annually, monthly or even weekly depending on the circumstances. Some settlements may pay an initial lump sum, and then monthly payments ongoing. The settlement annuity assists the party who receives compensation, by providing them ongoing funds which cannot all be spent or wasted. The annuity assists the individual in paying everyday living expenses as opposed to wasting the compensation on gifts, as can be the case in a lump payment. The annuity thus allows the recovery of the injured party to be as comfortable as possible, because they have a regular flow of income.
The payments that are received from the annuity settlements are treated by the IRS as being tax-free. The settlements are treated in the same way to a lawsuit or injury-related settlement. Annuity structured settlements have been introduced as statutory tort law in several common law countries including Australia, Canada, England and the United States.
Structured settlement annuities can also be used in the case of minors or those who are deemed to be incapable of managing their funds. The annuity settlements ensure that the funds of the minor or other individual are kept safe until required. For example, the annuity could be contracted to release a set amount of funds to a minor once the individual begins high school in order to cater for education expenses. In some cases, all funds may be released to the minor, once they reach a certain age.
Structured settlement annuities certainly make legal and financial situations easier in the event of damage or injury. They allow both parties to return to normality quickly by providing a contract of compensation which is understood between them.