What is a Structured Settlement?
When an injured person settles a lawsuit relating to those injuries, they often have two options. The first option is a lump-sum settlement. As the name implies, this is a one-time payment of tax-free money that the injured person can use for any purpose they choose. Ordinary uses for the funds include replacing lost income or paying for future care needs. The second option is a structured settlement.
A structured settlement is a type of life insurance product called an annuity. If the injured person places their settlement funds in a structured settlement they are guaranteed to receive a fixed stream of tax-free payments for as long as the annuity lasts. These payments usually continue for the balance of the injured person’s life.
Why put the money in a structured settlement? One advantage is that the principal is invested for the injured person and some of the principal and interest are paid out every month on a tax-free basis. This removes the worry of having to invest limited settlement funds in the stock market or other non-guaranteed investments. In addition, the annuity payments are guaranteed to be made by a large Canadian life insurance company. In the unlikely event that the life insurance company goes bankrupt there are additional levels of protection for the injured person. This provides the injured person with peace of mind that their money will always be there working for them.
Structured settlements are not for everyone but if you or someone you know is settling a personal injury lawsuit or accident benefits claim then a structured settlement should be discussed with your legal counsel prior to settlement.
