Structured Settlement Annuity – Would You Consider It?

2007-03-08 10:33:40

( Insurance )



A structured settlement annuity can assure you of a steady income stream over a set period. It has some advantages, but there are also pitfalls for you to guard against.

If you stand to receive substantial award amounts from auto insurance settlements or workers’ compensation claim settlements, you may arrange to have the claim settlements paid in installments instead of a lump sum. This will guarantee that future payments will be made through a structured settlement annuity.

You can enjoy several advantages from a structured settlement annuity. For one, if you can have it arranged by your lawyer, claim settlements – which are a sudden income windfall – paid through a structured settlement annuity can result in reduced tax assessments on you or could even be tax-free. Also, by having the claim settlements come gradually, you prevent fund dissipation due to your unwise spending or too liberal sharing of the windfall with friends and relatives. Most important, a gradual settlement annuity ensures future funds will be available for necessary future expenses, like a child’s education or special medical care.

On the other hand, you may feel that you can do better by getting a lump sum claim settlements arrangement, because you can invest it in an option with higher long-term returns than a structured settlement annuity. Or, you may have plans to buy a new home or something expensive but lack the money for it. Remember, you cannot borrow against future payments guaranteed in a structured settlement annuity.

There are things that you should watch out for if you opt for settlement annuity. Insurance companies charge high commissions for setting up a structured settlement annuity, so you should be careful their charges do not eat too much of your capital. You must take extra trouble of comparing commissions and fees charged by various insurance companies to ensure that you get full value on your auto insurance settlements or workers’ compensation claim settlements.

The most important thing is life expectancy. If you suffered extensive personal injury arising from an accident, it is more likely that you will have a shortened life expectancy as a result of the injuries. You may want to ensure that payments will not cease upon death. You can insist upon a settlement annuity that guarantees a minimum number of payments or pays any balance remaining on the claim settlements to your estate. This way, you are sure that you do not forfeit the remaining value of the claim settlements to the insurance company in case of your untimely death.


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