structured settlements 101

Assume Rob is walking down the sidewalk and a vehicle, thanks to its negligent driver, runs over Rob on the sidewalk. Rob takes the negligent driver to court. Instead of any lawsuits being carried out to completion – or even filed in the first place – defendants often agree to provide claimants with an agreed-upon amount of money called a settlement.

A structured settlement is a settlement, almost exclusively resulting from personal injury cases, that consists of paying the claimant a fixed amount on a periodical basis – every week, month, or year, for example – for several years.

If you’re reading this, you’re most likely not an attorney. As such, you probably aren’t well-versed in structured settlements. Let’s learn a bit about these settlements to better round off your understanding and knowledge of personal finance.

Why award long-term payment plans instead of one-off payments?

Most people aren’t great at handling large sums of money. If the average person comes into owning several hundred thousand or millions of dollars, they will likely burn through it way too quickly and have nothing to show for themselves.

It’s important for claimants in personal injury lawsuits to protect what money they earn. After all, many claimants’ injuries have effects that last their entire lifetimes, such as leaving them legally and practically disabled.

The history of structured settlements

In 1982, Congress enacted the Periodic Payment Settlement Act. Although claimants might not always receive structured settlements, those who became disabled as a direct result of such injuries almost certainly will. This is because courts of law want to make sure that freshly-disabled persons have a good chance of staying financially healthy for years to come, rather than burn out quickly like a shooting star.

Investments can be changed over time – can structured settlements?

If you invest in an annuity, you can restructure what investments your annuity is bought into. Although fees for these types of annuities are sometimes high – they’ll almost certainly be higher than fixed-rate annuities, that’s for sure – the ability to restructure what you invest in can help you hit goals that are likely to change.

Structured settlements do not permit you to juggle money around. Rather – hence the name structured – they are stuck in stone until the number of scheduled payments run out.