Do You Earn More Than What is Put Into a Structured Settlement?

Some people get confused about whether there is interest on or in a structured settlement

We're so used to depositing money in a bank savings account, CD or money market account, earning interest and seeing it on our account statements each month.

A structured settlement is a contractual arrangement method to settle a claim or lawsuit. You agree to give up your claims in exchange for a promise to make future structured settlement payments  ("periodic payments"). After the structured settlementpayment obligation is assigned by the Defeandant or its insurer by way of a qualified assignment, the assumed future structured settlement payment obligation is then funded with a structured settlement annuity using funds that the qualified assignment company receives at the time of the qualified assignment. Most qualified assignment companies charge a nominal fee. Some do not charge a qualified assignment fee, The annuity issuer software will calculate the Internal Rate of Return inclusive of the qualfied assignment fee.  What is a Qualified Assignment? (4structures.com)

Structured settlements are generally not meant for payments under 5 years, although improvements in interest rates since 2022 and the use of duration based compensation models and funding agreement periodic payment arrangements, with non qualified assignments, may be accomodate certain types of short duration cash flows.

The total future payout exceeds the Structured Settlement Funding Amount. That difference is the interest. 

If the structured settlement payments represent damages for personal physical injury, wrongful death, workers compensation or wrongful incarceration, then payments are income tax free. 

The Internal Rate of Return gives you a means to compare structured settlements to alternative investments

Last updated June 18, 2024