What are Structured Settlement Annuities?

STRUCTURED SETTLEMENT ANNUITIES

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STRUCTURED SETTLEMENT ANNUITIES

What are structured settlement annuities? 


How do structured settlement annuities differ from retirement annuities? 


Are structured settlement annuities taxable?

Structured settlement annuities ("structured settlements") are an insurance product that generates one or more customizable streams of income and/or periodic lump sum payments, in a single annuity contract.


Structured settlement annuities help bridge gaps and are used to fund damages in the settlement of claims, lawsuits or other disputes where income certainty is needed. 


 If you are a personal injury lawyer, employment lawyer,  aviation lawyer,  medical malpractice lawyer,  who hasn't sought a quote for structured settlement annuities in a while, you may want to give them a look now.


Structured settlement annuities are one valuable piece of the settlement planning puzzle. Trial lawyers who earn contingency fees for services may  use any of the types of structured  settlement annuities as one of their options to fund certain structured attorney fee deferrals.


How do structured settlement annuities differ from regular retirement annuities?


Structured settlement annuities differ from from retirement annuities in their ability to provide one or more customized stable annuity payment streams in a single contract. This is a significant difference and advantage over retirement annuities, which lack the customization and would require multiple contracts.  


By using structured settlement annuities, you can combine elements of immediate annuities, deferred income annuities, deferred kump sums, index adjusted annuity income, and deferred annuities, to address different needs and timing. 


Prudential introduced Income Advantage, a next generation index linked structured settlement annuity in October 2023, that offers plaintiffs (and plaintiff lawyers structuring fees) with increased flexibility, offered by an insurer in business since 1875. Read more about Prudential's Income Advantage here


Pacific Life Insurance Company (Pacific Life and Annuity Company, in New York) has an option for an index linked annuity payment adjustment rider (ILAPA) to add to the settlement planning mix.  Payments can adjust upwards with positive changes in the S&P 500, with a 5% cap and with no downward adjustments. A NextGen version is expected in late 2024.


Independent Life Insurance Company issues the structured settlement market's first uncapped index linked structured settlement annuity, participating in changes to the Franklin BofA Word Index. Read about the iStructure index linked structured settlement annuity here


Interest rate linked structured settlements were a Pandemic Era  response to  a perceived resistance by prospects to lock in historically low interest rates for an extended period. By using an objective formula triggered by point to point changes in the 10 Year US Treasury, interest rate linked structured settlements provided the potential to benefit from rising interest rates in the following years through a conversion of lump sums to income streams at prevailing rates, if the feature is set up when the contract is established.


Additional indexed structured settlement annuity options and innovation is coming later in 2024.  Stay tuned.


Structured settlement annuities are a core personal injury settlement planning tool


The safety, stability and guarantees inherent in structured settlement annuities are ideally suited to be the foundation of a well-crafted settlement plan Income certainty is a basic need. Design your own basic income or more.


Who offers structured settlement annuities?


Legitimate structured settlement annuities are only available through insurance licensed and appointed specialist structured settlement brokers and settlement planners. 


The life  insurance companies that issue structured settlement annuities are among the largest and well capitalized in the world.  


Each insurer is subject to strict financial reporting requirements. Insurer financials are audited on a regular basis by the state insurance regulators in each state that they do business .


Flexibility 


You can blend together different types of structured settlement payment streams   to address unique

known or predictable needs,in a single annuity contract. This is a big difference between structured settlement annuities and retirement annuities. This enables payees to conveniently address multiple needs at once, with a high level of precision. Structured settlement payments can begin immediately or can be deferred, or both


Structured settlement  cash flows can also be diversified by split funding between more than one life insurance company and/or between fixed, index-linked structured settlement annuities and market based structured settlement solutions.


Structured settlement annuities are not just for personal injury settlements


 While structured settlement annuities are most commonly used in the settlement of claims or lawsuits involving personal injury, wrongful death or worker's compensation, structured settlement annuities can also be used in the settlement of employment lawsuits .  

Are structured settlement annuities taxable?


It is the type of damages that the payments from the structured settlement annuities represent, that governs the taxability of payments from structured settlement annuities. not the annuities  themselves. 


Read more about taxation of structured settlement annuities here


Structured settlement annuities are not available for purchase by plaintiffs or investors


Structured settlement annuities are not available for purchase by individual plaintiffs or investors. Plaintiffs are the payees but not the owners of the structured settelment annuities funidng their structured settlements, That may seem a little weird but that's the way it is and it's a tax thing.


Note that vulnerable investors including seniors and those representing vulnerable investors, may be targeted for investment in payment rights from other peoples' structured settlement payments (or structured settlement receivables) inaccurately labeled structured settlement annuities. Judges, plaintiff lawyers, pension trustees need to be especially vigilant.


The typical purchasers of a structured settlement annuities are individual defendants or respondents, their insurers, or their qualified assignee (Qualified Assignment Company) as a qualified funding asset pursuant to IRC §130(d), or a Non-Qualified Assignment Company, to fund future periodic payment obligations to plaintiffs. When a structured settlement is established and an annuity is applied for and purchased to fund a future periodic payment obligation, the plaintiff does not own the annuity, they simply have the right to receive structured settlement payments.


What is not a structured settlement annuity?


While you may see ads online or on websites for companies in the secondary or tertiary market claiming to be in the business of buying structured settlement annuities from annuitants or selling structured settlement annuities as an investment for your IRA, what they are selling to is not an annuity or insurance product, according to the National Association of Insurance Commissioners and do not fit the definition of annuity appearing on the websites of state insurance regulators, FINRA and the SEC.


Click here to learn what you need to know about structured settlement quotes


Last updated March 18, 2024


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