Structured Settlement – Is it beneficial to me?
Settlement of your personal injury claim is ordinarily a one-time cash payment. This is better known as a lump sum settlement. The Canada Revenue Agency does not consider your personal injury settlement taxable. However any earnings generated from the settlement money once invested are taxable. Fortunately, a lump sum settlement is often not your only option.
A structured settlement is a type of insurance product called an annuity. This annuity allows you to receive periodic payments on an agreed schedule. If the annuity is purchased as a part of a structured settlement, all of the annuity payments (both principal and interest) are tax-free. This is a unique opportunity offered by the Canadian government to those who have had personal injury claims. No management fees are payable on the annuity, and, in most cases, you are guaranteed to receive monthly annuity payments for as long as you remain alive. With the structured settlement, you decide how the money is going to be paid out to you over time. It is important to note that your right to choose a structured settlement must be negotiated prior to finalizing your settlement with the insurer.
Below are only a few reasons why purchasing a structure may be beneficial to you:
• Flexibility: you decide how much of your settlement you want to structure, the duration and frequency of the payments and when you want the payments to commence;
• Financial Protection: to ensure that you do not run out of settlement funds prematurely, a structured settlement will allow you to receive guaranteed periodic payments for as long as you live;
• Estate Protection: in the event that you die prematurely, if your annuity includes a guarantee period, your payments will continue for a fixed period and be payable to your estate or heirs;
• No Income Tax or Management Fees: the life insurer pays out the management fees, so you never need to pay a fee for your structure. In accordance with the Canada Revenue Agency, structure payments are not considered income, and therefore cannot be taxable.
If you decide to purchase a structured settlement, the insurance company will purchase the annuity from a federally registered life insurer. To ensure that all of your needs and requirements are met, a structured settlement specialist and your lawyer will meet with you to offer guidance and provide you with various structure options to choose from. It is also important to keep in mind that once the structure is purchased no changes can be made.
Making an informed choice is your right, it is important that you speak to your lawyer about this issue before your settlement if finalized.
