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What Is a Structured Settlement?

Structured settlements are an innovative method of compensating injury victims. Encouraged by the U.S. Congress since 1982, a structured settlement is a completely voluntary agreement between the injury victim and the defendant.

Under a structured settlement, an injury victim doesn't receive compensation for his or her injuries in one lump sum. Rather, he will receive a stream of tax-free payments tailored to meet future medical expenses and basic living needs.

A structured settlement may be agreed to privately (for example, in a pre-trial settlement) or it may be required by a court order, which often happens in judgments involving minors.

A structured settlement is an alternative to a lump sum cash payment litigants receive after a personal injury, wrongful death, or workers' compensation case has settled.

In general, the settlement consists of an up front cash payment to provide for immediate needs and a series of future periodic payments, funded by the litigant's purchase of an annuity policy or who then makes the periodic payments directly to the litigant. An annuity policy is a policy allowing someone to put in a large investment and have it paid out over time, that way it is tax-deferred. In general, annuities are packaged as insurance products.

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