A Structured Settlement is a method of settling a claim or lawsuit wherein a protion of the settlement proceeds are paid immediately at time of settlement and the remainder in a series of pre-determined future periodic payments designed around the specific needs of the damaged party.
The Structured Settlement payments are usually funded through a single-premium annuity policy purchased by the defendant or their insurer.
Historical Perspective
The first known use of Structured Settlements was the tragic Thalidomide cases of the 1960s in West Germany and Canada. This so called wonder drug was a great sleeping aid for pregnant mothers, but resulted in children born with horrible deformities. The need was for a life income and most of these cases were resolved with Structured Settlements. In the United States, the first use was in birth trauma cases in California at a major medical school hospital. Again, the goal was a guaranteed life income and the most economical and financially sound way was through an annuity.
Dissipation of Lump Sum Settlements
Insurance industry statistics show that 25 to 30% of all accident victims completely dissipate their judgments or settlements within two months of recovery and 90% spend it all within five years. (Source: the Rutter Group, ltd from Flahavan, Rea, Kelly & Tener, “California Practice Guide: personal injury” (trg 1992) ch. 4). From a practical standpoint, many claimants are not in a position to make intelligent decisions on complex investments. They can be preyed upon by the least savory elements in society, with tragic results. A Structured Settlement protects against this and ensures the money will be there as needed, often over a lifetime and not subject to the attachment of creditors.
Is a Structured Settlement Appropriate?
All cases are not appropriate for Structured Settlements. For instance, if there are pressing needs that can only be met by an immediate cash payment, then that should be the course of action. For the more serious situations of long term damages including elements of medical expense, wage loss and pain and suffering; the structure approach is a proven and highly effective tool. The funds are there, when needed, and in a tax free and guaranteed manner.
