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Personal Finance Resources - Understanding What a Structured Settlement Is!


The process of the structured settlement has been around for decades and have basically become the actual choice in most legal cases. Probably the most common kind of structured settlements result from many different workers' compensation cases or very severe job related health injuries or issues.

If managed carefully structured settlements can be a really good options for the claimant but in some cases it isn't the best option. If you understand the background as well as the purpose of these settlements may help a claimant to make the best choice about this kind of a settlement.

First off, these kinds of settlements were designed to pay out funds periodically and over a certain amount of time instead of handing out the settlement all at the same time. There are two reasons for paying the settlements this way. One being the person or party that has to pay the settlement has the choice to provide payments over time instead of all at once and the claimant can be assured on ongoing payments that will arrived at a scheduled time. Even in some cases the settlement can be passed onto an heir if the claimant dies before all of the payments have been paid.

These types of settlements first came about and were used in the United States back in the 70's. Up until then, people would receive their settlements all at once. Originally these kinds of settlements were only offered in cases where the claimant was owed a very large sum of money after some sort of major injury. Over the past 30 or so years, these types of settlements have become the normal way of handling settlements instead of being the exception to the rule.

There are two different kinds of structured settlements. The first one is a basic financial arrangement. This is where the party who has to pay the settlement will give periodic payments to the claimant. Whatever the terms are of the settlement will indicate how often they have to pay the claimant.

The other variety comes in the form of insurance annuity payments. The money from the settlement is used to buy life insurance annuities that an insurance company will hand out to the claimant over a certain amount of time.

In some cases the amount of time to get the settlement paid will have a certain year in which the payments will stop coming. Other situations the claimant can request that they get payments every few years. For example the claimant will receive a certain amount of money every 5 years instead of perhaps on a monthly basis.

These types of settlements have both pros and cons just like anything. Probably the biggest pro would be that the payments are subject to very little taxation and sometimes they don't even get taxed at all. These kinds of payments also help the claimant have a more secure financial life instead of letting them have it all in one large sum.

The biggest con is that the claimant sometimes feels that this kind of settlement is a bit unfair and keeps them locked int payments when they might rather have all of the money up front so they can do what they want with it, like investing the money in property or other types of money making investments.



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