A "structured settlement" is a settlement of an injury claim where the parties agree that the injured person's recovery will be placed in an annuity contract, and payments will be made over a schedule period of time. Of course, this raises the question of what an annuity contract is.
The best way to think of an annuity contract is to simply consider it as an insurance policy. When you enter into an annuity contract, you agree to surrender control over a sum of money to an insurance company. This money may be "locked up" for a period of time. After an agreed-upon period of time, the insurance company then makes periodic payments from the annuity. The payments are scheduled as agreed-upon, and when everything is said and done, in many cases, the total sum of the payments made over time are greater than the initial amount in the annuity.
Another way to look at this is as a loan to the insurance company with deferred payments and interest.
Why would somebody want to enter into an annuity contract?
There are a couple of reasons somebody might be interested in structuring their settlement with an annuity. First, if done correctly, the income or increase in overall recovery with schedule payments is not taxable. However, the principle recovery on an injury claim is usually not taxable as well.
More often, we use annuity contracts when representing children. Depending upon the child's age at the time we resolve a claim, an annuity contract presents a wonderful opportunity for college savings or other opportunities for young person. Also, if a court approves of the structured settlement within annuity contract, in many cases, it will waive the typical requirements of an annual accounting for the conservatorship, which is also a necessary part of resolving a child this case.
Although annuity contracts are not for everyone, they definitely should be considered when planning the management of settlement funds for an injured child.
Sometimes, an insurance company will approach a parent of an injured child and propose an annuity contract. Any parent managing the claim on the half of a child should always cautious in evaluating which annuity product works best. We have a great relationship with a trusted annuity broker who ensures that the annuity product is reliable and solid, which is crucial to ensure reliability.
If you have a child who has an injury claim, and want to explore your options in pursuing and resolving the claim in the best interest of your child, call us at 503-325-8600. We can go through all the options, and help you make the right decision.