Types of Structured Settlement Payments | What Are They?

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Types of Structured Settlements

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STRUCTURED SETTLEMENT PAYMENTS

What Are The Types of Structured Settlement Payments? 

Structured Settlement Payments 


Building Your Structured Settlement


Structured settlement payments are often used to provide core foundational income as part of a well crafted settlement plan in personal injury, wrongful death and many other types of settlements.  Structured settlements are ideally suited to address the thing that most people most worry about the most, money.


  1. A structured settlement annuity is customizable
  2. It's possible to choose one or more of the different types of payments described below and incorporate them in a single structured settlement annuity contract
  3. This can be helpful in addressing measurable needs of the life care plan of an injured person, or provide a source of income replacement for a payee or stable cash flow for a survivor, lawyer, law firm or business. It can provide clarity.
  4. Diversification with multiple companies is common to optimize pricing efficiencies and may be prudent on larger settlements, or simply by personal choice.   
  5. Some people also diversify different products as well.


The different types of structured settlement payments described below can be paid:


  • directly to a Plaintiff or Payee
  • to a trust (such as a settlement preservation trust, settlement protection trust, special needs trust, supplemental needs trust, pour over trust, Medicare Set Aside account or trust, memorial fund, scholarship fund, or other recovery management trust) are described below.
  • Structured settlement payments can be made by ACH or electronic funds transfer, directly to the bank account of the Plaintiff, Payee, law firm or attorney ( if attorney fees are being structured).


Let's review the different types of structured settlement payments available in 2024

Income for Life Annuities


Lifetime guaranteed structured settlement income streams can help maintain the Plaintiff or Payee's current standard of living. Depending on the annuity issuer, structured settlement payments may be made weekly, bi-weekly, monthly, quarterly, semi-annually, annually, every other year, temporary life or other payment modes. A death benefit (also known as a certain period or guarantee period) can be associated with the lifetime payments so that benefits will be paid for the certain period whether or not the Payee survives the entire payment schedule. For example a quote of $4,000 per month for life with 30 years certain means that payments will continue for 30 years (360 months), or the life of the Payee, whichever is longer .

Deferred Lump-Sum Payments


Deferred lump sums can be made at pre-determined life milestones for special funding needs such as college education, future medical costs, retirement planning, reinvestment and as a hedge against inflation, providing additional funds for future investment. Lump sums can be certain (most common) or life contingent. Deferred lump sum payments can be used as the tail end of a "bond simulation".

Step Annuities


Step payment structured settlement annuities provide stable structured settlement income that incorporates graduated increases over the initial payment amount for a fixed period and/or lifetime.

Percentage Increase Annuities


Like Step Annuities, provide graduated increases over the initial payment amount by using a fixed percentage to provide annually increasing income, to help protect against inflation. Sometimes inaccurately referred to as a COLA, which is usually associated with an index.

Interest Rate Linked Structured Settlements 


Interest Rate Linked Structured Settlements were introduced after a prolonged period of low interest rates, to help plaintiffs and attorneys address the fear of missing out on  the possibility of interest rates rising in the future. Interest Rate Linked Structured Settlements can be used as a lump sum with the potential to "take it up a notch" through the conversion of deferred lump sums to income streams on predetermined dates and duration, if certain conditions are met.


Here's how it works. First you pick a lump sum or sums and a time to receive them.  You also pick a duration for a payment stream that the lump sum will convert to if interest rates rise above the reference interest rate set when the annuity is established, on the Annuity Benefit Determination Date.  Each duration has a reference interest rate tied to U.S. Treasuries. You can select from 5,10, 15, 20, 25 or so years. Using the 20 year U.S. Treasury Bond rate as a reference example for a 20th year lump sum,  in the event the 20-Year U.S. Treasury Bond Yield Rate does not increase on the Annuity Benefit Determination Date, or the Payee is deceased on or before the Annuity Determination Date  (10 days before payment is due), the Guaranteed Lump Sum Benefit will be paid. But if the 20 Year bond in the example is higher then you benefit from an income steam.   Also see IRS PLR 202127039  (April 14, 2021).


At the present time Interest Rate Linked Structured Settlements are not available in the State of New York.


Index Linked Structured Settlement Annuities


Fixed index linked structured settlement annuities or annuity payment adjustment riders provide future periodic payments that will increase annually based on positive changes in a published index between two measuring points (point to point).  This market segment is expanding. An increasing number of structured settlement annuity issuers offer Index linked structured settlement annuities or have them in dveelopment. There are multiple fixed index-linked structured settlement annuity options available today that offer a choice between capped and uncapped strategies for plaintiffs and attorney fee structured settlements..


Pacific Life offers an index linked annuity payment adjustment rider that provides future periodic payments will increase annually based on positive changes in the Standard and Poors 500 (S&P 500) between two measuring points (point to point) with a cap of 5%. Payments will not reduce if the S&P 500 goes down between the two annual measuring points. The first adjustment would be effective on the contract anniversary following the start of payments that are being indexed and subsequent adjustments would occur on future contract anniversaries. Only structured settlement income payments are eligible. Can be used for structured settlements paid to the plaintiff or for structured attorney fees. The annuity issuer, Pacific Life Insurance Company, (or Pacific Life and Annuity Company, in New York), has obtained favorable IRS Private Letter Ruling 201435006 to support its Index Linked Annuity Payment Adjustment Rider (ILAPA). 


Independent Life Insurance Company offers iStructure, an uncapped fixed index structured settlement annuity that is tied to the Franklin BofA World Index. A significant competitive advantage is that annuitants do not need to wait for payments to start for indexing to begin. Read more about iStructure in our blog of December 9, 2021 by clicking the link iStructure link above or contact us at the number above.


Prudential Insurance Company of America introduced Income Advantage, an index linked structured settlement annuity in October 2023. Prudential sought and received favorable IRS Private Letter Rulings addressed to Prudential Insurance Company of America and its qualified assignment company, Prudential Assiugned Settlement Services Corporation (PASSCorp).


Pacific Life will likely introduce a new and improved index linked structured settlement annuity later in 2024.


Deferred Defined Benefit Annuities


Deferred Defined Benefit structured settlement annuities,  permit a Payee to defer the start of structured settlement payments to a later date, if desired, with  known stable, or increasing payments, index linked benefit payment, or market based  structured settlement payments.

Period Certain Annuities 


Period certain structured settlement payments are paid only for a fixed period of time. Different modal structured settlement payments may be utilized when income is only needed for a specific time period. Modal Payments can be combined with a lump sum payment, at the end of a specific structured settlement payment period, to simulate the cash flow from a bond held to maturity. Often used for payments timed to help fund college or grad school, or to layer retirement income for structured attorney fees. Certain also means that payments are guaranteed and will be made whether or not the Payee survives the entire payment schedule . Also known as Annuity Certain.

Joint and Survivor Annuities 


Joint and  Survivor structured settlement annuities can be purchased for two separate annuitants under one contract, whereupon joint and survivor payments will continue to the surviving annuitant after the primary annuitant's death at a rate equal to, or at a predetermined percentage of, the original benefit.

Treasury Funded Structured Settlements (TFSS)


Treasury Funded Structured Settlements use a combination of Treasury Inflation Protected Securities (TIPS) where the bond's underlying principal rises and falls with changes in the inflation rate (currently the CPI-U), and STRIPS to guarantee deferred lump sum payments. Interest paid on the TIPS adjusts along with the principal. Also known as "T Bond Trust".

Market Based Structured Settlements/ Variable Periodic Payment Income


Market Based Structured Settlements are a  custom structured settlement payment option for plaintiffs,  or for attorney fee deferrals , which allows for participation in the returns of a managed equity market portfolio, with scheduled payment times based on an objective and determinable formula . Income payments will fluctuate to reflect the performance of the investment portfolios underlying the selected investment buckets and can be structured in different modes and durations. There are several market based structured settlement options with and without an annuity wrapper to help meet client objectives and taste.


For example one of the options is split funded between a traditional fixed structured settlement payment flow from an annuity, paired with variable periodic payments drawing from a trust that is powered by Vanguard, the well known money manager. The program is dubbed a "Growth Structured Settlement" . Other options in the market based structured settlement product spectrum. for the plaintiff or attorney to use their own money manager are also available. There is a prequisite minimum 20 year combined fixed variable duration with the Growth Structured Settlement.  Click the above link or call us at 888-325-8640  for more specifics. 

Structured Settlement Receivables


Also known as Factored Structured Settlement Payment Streams, Acquired Structured Settlement Payment Rights, Assigned Payments, a/k/a Structured Settlement Derivatives, Structured Settlement Retreads,"Other People's Structured Settlement Payments", Secondary Market Income Streams,  or by the wholly misleading term Secondary Market Annuity, or wholly misleading acronyms SMA, SMIA)


Structured settlement receivables are not annuities. For those that it is appropriate for (and there are not many injury victims), segments of structured settlement payment rights can be purchased in the secondary or tertiary structured settlement market at attractive rates and plugged into the need/ time continuum. While the income derived from a purchase of factored structured settlement payment streams in such a manner, is not completely income tax free (unlike the traditional physical injury structured settlement), it may be attractive, even on an after tax basis, particularly on shorter durations, or where there are offsetting tax deductions that can be used (such as ongoing medicals). Unlike structured settlement annuities, which can be quoted directly from software available from life insurance companies, such payments rights are dependent on inventory in the secondary market or tertiary market. Often purchased via a settlement management trust for simplicity of administration for the plaintiff, or an IRA or other qualified retirement plan.


Caution! There are transactional risks in structured settlement receivables that are not present in legitimate structured settlement annuities.  Be mindful that such risks may not be disclosed in the marketing hype.  Furthermore, your adviser's errors & omissions policy may not provide coverage for structured settlement receivables.


40 states expressly exclude investors in acquired structured settlement payment rights from statutory insolvency protections.  

Even if your state does not have such an exclusion today, for those states that adopt the 2017 LHGA Model Act (#520) there is an express exclusion that applies whether or not the rights were acquired prior to the effective date of the adoption.


Some investors, including lawyers and personal injury victims and their families, have been solicited by intermediaries, including certain settlement planners, who have mischaracterized factored structured settlement payment streams as an ultra safe investment, using the wholly misleading term "Secondary Market Annuities". A "Secondary Market Annuity" is not an annuity .  If you drill down to the structured settlement transfer paerwork


  • The statutory definition of annuity under many states' laws explicitly qualifies that it refers to "an annuity, that is an insurance product, that is individually solicited".
  • NAIC Statutory Issue Paper 160, finalized April 6, 2019, clarifies that acquired tsructured settlement payment streams are not annuities or insurance products
  • There is significant case law substantiating that acquired structured settlement payments streams are not annuities. For example, in Western United Life Assurance Company v. Hayden , 64 F.3d 833 (3rd Cir. 1995), then-Judge (later U.S. Supreme Court Justice) Samuel Alito, on behalf of the Third Circuit Court of Appeals, repeatedly pointed to the difference between rights that a payee has to future payments under a settlement agreement and the lack of rights of a payee under an annuity purchased by the obligor to fund such payments.  Visit our July 6, 2021 blog Investing in Structured Settlements, a Guide For the Unwary.


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Last updated March 15, 2024

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Sort Out Your Structured Settlement Options

 John Darer can help you sort through the types of structured settlement payment options, at a pace that is comfortable for you. Call  John Darer  at 888-325-8640

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