Structured Settlement

A structured settlement is a financial arrangement in which a personal injury plaintiff agrees to receive their compensation in periodic payments over time rather than as a single lump-sum payment. Structured settlements are typically funded through the purchase of an annuity by the defendant or their insurer, with the annuity making scheduled payments to the plaintiff according to an agreed-upon schedule. They are commonly used in cases involving large damage awards, particularly those involving catastrophic injuries or the wrongful death of a primary income earner.

Structured settlements offer several advantages for plaintiffs. The periodic payments provide a reliable, steady income stream that can be tailored to the plaintiff's long-term financial needs — for example, covering future medical expenses as they arise, providing for a child's education, or replacing lost income over the plaintiff's expected working life. The payments are also tax-free under federal law (the Periodic Payment Settlement Tax Act of 1982), which can represent a significant financial advantage compared to a lump-sum payment.

For defendants and their insurers, structured settlements can reduce the total cost of resolving a claim compared to a lump-sum payment, as the present value of the annuity is typically less than the total nominal amount of the structured payments. Structured settlements also reduce the risk that a plaintiff will spend a large lump-sum award quickly and then have no resources to cover future medical needs — which could theoretically lead to pressure on public benefit programs.

Plaintiffs should carefully evaluate structured settlement offers with the help of both a personal injury attorney and a financial advisor. While structured settlements offer tax advantages and security, they also limit flexibility — once established, the payment schedule is generally fixed and cannot be changed as circumstances evolve. A secondary market exists for selling future structured settlement payments, but this practice is regulated by state law and often results in the plaintiff receiving substantially less than the full present value of their future payments.