While there are many annuities available to individuals, for a variety of reasons, a structured settlement annuity is something different. It is usually provided as a payment for a settled court case, where the defendant is ordered by the court to pay a significant amount of cash to the plaintiff. As a result, an insurance company will produce an annuity policy for a specific amount of cash up front, in exchange for monthly payments made to the plaintiff over time. Many of these types of annuities are referred to as an “immediate annuity” because payments are issued as soon as a deposit has been made to the insurer.
Making the Deposit
The defendant in a personal injury case, or one involving workers’ compensation, is often required to purchase a structured settlement annuity from an insurance company. The initial process begins with a deposit of a significant amount of money – although it is much less than the total amount due to the plaintiff. For a specific amount, the insurance company will invest the money and pay out monthly amounts to the plaintiff in the case, over the course of many years.
Investing the Funds
The insurance or annuity company will typically invest the lump sum they received from the defendant into various investment instruments. Typically, these involve bonds that will produce income generated specifically to the insurance company. These bonds will work as an essential guarantee that will produce a specific rate of investment return on the money used to purchase the bond. As a result, the insurance company will make a profit from their bond every month, even after making the monthly payment to the plaintiff.
The Payment Options
The judge in the case has the opportunity to select from a variety of payment options for the plaintiff. Many times, the courts will elect to provide a lifetime annuity payment, where the monthly amount continues for the plaintiff’s entire life. The payment will only stop once the plaintiff has passed away. Another alternative the judge can use is a temporary annuity, where payments are made every month or year for a specific length of time. All of the payments will be made whether the plaintiff is living or not, with any proceeds going to the plaintiff’s beneficiaries should he or she pass away before the last payment is made.
What to Consider
For many individuals that have suffered a significant injury, a structured settlement is a useful tool to provide monthly income. They can often help cover financial needs and medical debt while the plaintiff recovers, if possible. However, sometimes the amount of the structured settlement’s monthly payment is not enough to make any significant difference in the individual’s life. When that happens, it is often a wise and prudent move to obtain structured settlement quotes from companies that will purchase the remaining payments in exchange for a lump sum of cash.
The process of selling off a structured settlement is simple. Many reputable businesses offer a significant percentage of the remaining payments in exchange for cash.