If you are about to accept a structured settlement, there are some questions that you should first ask, and, depending on the answers, some issues that should be resolved.
First, a structured settlement is an agreement to pay compensation for injury, and it comes following a successful claim for legal action or damages. The defendant or associated insurance company offers to pay an amount, but they would pay in installments over a period of years rather than one lump sum. This is the essence of a structured settlement, and its framework. Secondly, the funds are tax-free or excluded from taxable income. The insurance company usually creates a contract with another insurer, often a subsidiary, to receive funds for settlements and pay outs using interest and any other gains. This, in effect, reduces the amount the original company has to pay, and the subsidiary contract clears the account off their books. The company that actually pays has proven assets and income to cover the payments.
Normally payments would begin at a certain time near the settlement date, usually within 30 days, and continue on a regular schedule of monthly payments, or as agreed. The insurance company pays attorney fees, if any, in a similar way, whether monthly or according to a schedule agreed upon. However, there are no requirements that the parties proceed this way, either side may request variations, and the process is a matter for negotiation and agreement.
Some helpful tips can make the entire experience more beneficial and easier to manage. One of the most important things to remember is that the process is flexible. The time for payment and the amounts are not set in stone, beyond the overall amount due; there is an area of flexibility which you can use to insure the best result under the circumstances. For example, if you were the guardian of a minor who would receive a structured settlement, the agreement could be set to protect against too much spending in the early years, to ensure education and a lifetime income. You can arrange the payments so that the insurance company pays little or none for 10 or more years. Thereafter, payments could increase during the time you expect the child to attend college and begin a family. This may allay fears of the exhaustion of funds sue to youthful spending, often unmindful of the future and its financial needs. You can build in protections against sale or loans of the settlement amount.
If you are about to receive a structured settlement and focuses on building a retirement, the payments can be set to coincide with the years before expected retirement, and for use in settling a retirement home and income. The payments set in this way avoids the waste of assets before the main goals are achieved, and act as a hedge against inflation when the loss of currency value can reduce the buying power of pension and retirement funds. You must remember, about any such arrangement, that they are flexible until agreed upon. Once agreed, the terms cannot be changed. Increasingly, courts exercise oversight over structured settlements to ensure that the goals of the settlement are achieved, including requiring court approval before sale or loans.
