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FAQ

  • WHAT IS A STRUCTURED SETTLEMENT?
  • A Structured Settlement is a form of income tax-free compensation designed to protect one’s financial interests for life.
  • WHY ARE STRUCTURED SETTLEMENTS PREFERABLE?
  • Typically, when someone is injured in a work-related accident, they may receive a lump sum cash settlement from an insurer. This money is income tax-free, but if proceeds are invested, any subsequent earnings become taxable. With a Structured Settlement, (also called a Structured Annuity Settlement), after-tax earnings are converted into future payments that are fully tax-free.
  • HOW ARE STRUCTURED SETTLEMENTS SCHEDULED?
  • In addition to providing a reliable tax shelter, Structured Settlements are also very flexible. Using financial projections based on your needs, future purchasing requirements are paid out in a lump sump or mapped out over a predetermined number of years. Scheduled payments may also be set up to meet future purchasing needs, or simply applied as payments over your lifetime. It is also possible to delay payments entirely, for example 10 or 15 years. This can ensure that you have sufficient funds available for future medical needs, as well as lifetime income.
  • DO STRUCTURED SETTLEMENTS OFFER ANY CASH DISBURSEMENT?
  • Yes. It is important to note that not all of the settlement funds are required to go into an annuity. In fact, most cases settle with an amount of cash distributed up-front.
  • IS THERE A CATCH TO STRUCTURED SETTLEMENTS?
  • The key to ensuring income tax-free payments via a Structured Settlement is that the client cannot own the annuity policy. Rather than paying the cash to the client, the Defendant sends any Structured Settlement monies directly to the to life insurance “assignment company.” The assignment company holds the policy and pays the client each month as the contract requires.
  • IS THIS LEGAL?
  • Special provisions in the tax code allow this method of settlement. Apart from special benefits to insurance companies, the Structure Settlement arrangement allows a Claimant to be a mere recipient of the periodic payments over time. Even though the Claimant is guaranteed to receive each payment, the tax code does not consider the Claimant to own anything – other than an expectation of each payment.
  • WHAT ARE THE LEGAL REQUIREMENTS FOR A STRUCTURED SETTLEMENT?
  • To qualify for special tax treatment, a structured settlement must meet the following requirements:
    • A structured settlement must be established by:
      • A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2) (26 U.S.C. § 104(a)(2)); or
      • An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1) (26 U.S.C. § 104(a)(1)); and
    • The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) (26 U.S.C. § 130(c)(2))) and must be payable by a person who:
      • Is a party to the suit or agreement or to a workers’ compensation claim; or
      • By a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with Internal Revenue Code Section 130 (26 U.S.C. § 130).
  • What is a Structured Settlement Consultant?
  • A Structured Settlement Consultant is a special type of insurance agent who, as a case approaches settlement, consults with attorneys for both the Defendant (employer) and the Applicant (employee).
  • How much does it cost to work with a Structured Settlement Consultant?
  • Structured Settlement Consultant services are free to Clients. Consultants are paid standardized commissions by the life insurance company that issues the Structured Settlement annuity.
  • How do I know I am getting the best Structured Settlement?
  • An Annuity Broker will run several financial projections based upon a Client’s personal and medical needs, and can also perform comparison-shopping within the available life markets to secure the best annuity pricing.

    An Applicant’s Broker specializes in conferring with the injured worker and his/her attorney to focus on the best way to meet their needs, and not that of the insurance carrier, and will provide expert guidance concerning the best available payment stream.

  • What is the Structured Settlement Process?
    1. As a case nears settlement, the Structured Settlement Consultant meets with the Applicant’s attorney to discuss the potential settlement value, which may include Permanent Disability costs, attorney fees, the MSA expenses, and other medical costs.
    2. The consultant then interviews the Claimant to determine any preference regarding monthly payment and any request for cash at settlement, and provides several annuity payout options for the for the client’s consideration.
    3. Once an agreement regarding both the settlement amount and payment stream have been reached, the annuity price is “locked-in.”
    4. The final compromise & release document is created and signed.
    5. All interested/involved parties meet at the Workers’ Compensation Appeals Board for judicial approval.
    6. The Workers’ Compensation carrier pays the award and issues a check to the appropriate life company for the purchase of the annuity.
    7. Within several months, the Annuity Policy is issued to the Client.