How Does a Structured Settlement Work Exactly?

Each year, Americans are awarded between $4 billion and $6 billion in the form of structured settlements. These awards can play a critical role in helping injured or wronged individuals and families. They can pay for living and medical expenses and help recipients get back on their feet.

But what is a structured settlement annuity? How does a structured settlement work? Keep reading now to find out.

What Is a Structured Settlement?

When you are injured or wronged, you have the right to sue the party responsible, be it an individual or a company. In some cases, the court may award you a settlement. In others, the defendant may agree to pay you to settle out of court.

When this happens, there are two types of payouts.

In a lump-sum payment, the defendant will pay you the whole amount upfront.

In a structured settlement, the defendant will arrange for you to receive the money owed you in smaller installments over time. For example, if your award is $500,000, you may receive $5,000 a month until the entire debt is paid.

The structured settlement definition, then, is court-awarded or out-of-court settlement money systematically paid to plaintiffs over time in compensation for injuries or legal wrongs done them.

How Does a Structured Settlement Work?

Knowing what they are and understanding how structured settlements work are two different things. The process associated with structured settlements can be confusing but ultimately breaks down like this.

First, an individual or family is injured or wronged. Second, with the help of a lawyer, they bring a case against the responsible party and become plaintiffs.

Then, one of two things can happen. Either the case goes to court or the defendant offers the plaintiff a large sum of money to settle out of court. In either case, the plaintiff agrees to receive a set amount of money in compensation for their suffering.

Structuring the Settlement

Once both parties sign the settlement and release, the defendant pays the whole amount due to a Qualified Assignment Company (QAC). The QAC then accepts the responsibility for paying out consistent smaller sums to the plaintiff for the life of the settlement.

In many cases, these payments are tax-free. Sometimes, recipients can designate a beneficiary to receive the payments on their behalf should they die before they receive the whole sum.

Recipients can use their settlement payments to:

  • Pay for living expenses
  • Cover medical expenses
  • Purchase investment products
  • Invest in their homes and educations
  • Pay for whatever else they need or want just as they would with any other form of income

Structured settlements help recipients manage their money and expenses over time. Individuals who need more money right away to help cover their current or unexpected expenses can sell some or all of their rights to future payments to financial service companies like Rightway Funding LLC and receive large and immediate lump-sum payments.

Manage Your Money Like a Pro

How does a structured settlement work? It provides you with ongoing and consistent infusions of cash that you can use to meet your daily needs. Check out our other great articles on how to make the most of your money no matter where it comes from and how a financial advisor can help, now!