Structured Settlement Annuity: What is it and when to use one.

It happens every day. What starts out as a seemingly normal day for thousands of people turns into a nightmare when an unexpected mishap occurs that can change someone's life forever. A car accident, a simple medical procedure gone wrong, an altercation with someone. These events alter the courses of peoples lives every day. What if it happens to you? What if suddenly due to someone else's negligence you were unable to continue to work? Naturally, you'd want to be compensated for this hardship. What form should this compensation take? A lump sum payout or structured payments over a set period of time? First and foremost you need to hire professional representation. to help you get through the court proceedings. Once you are through, it may be determined that the damages owed to you should be paid out using a "Structured Settlement Annuity." But what is a structured settlement annuity? Simply, A structured settlement is an agreement between a plaintiff and a defendant under which the injured person (plaintiff) receives damages in the form of a stream of periodic payments purchased for the plaintiff on behalf of the defendant. Over the years these have been shown to effectively meet a plaintiff or claimant's need for security. Why should you use one? There are a number of reasons but the first two are that it prevents an undisciplined spender from going through a lump sum payment too quickly. The other is that if you use a structured settlement annuity that provides periodic payments, the claimant is entitled to significant tax relief that receiving a lump sum payout does not. A structured settlement provides security over time that a lump sum payout simply cannot. It is important to note, that the security of the payments is only as strong as the financial strength of the company that issues the annuity. Therefore, care, research and seeking out trustworthy advice is paramount when choosing a financial institution to issue the annuity.

A Structured Settlement Nightmare: Don't Let This Happen To You.

Accidents happen. Medical malpractice, while difficult to accept, happens. These are just a couple of instances where forces beyond your control can turn your life upside down and change it forever. Unfortunately, it happens every day. Now, it may be that you can't control these occurrences, but there is a legal system in place that can help you lessen the burden of these events in the coming years. If you are the victim of someone else's negligence get a qualified attorney and go to court. The result should be a a "Structured Settlement" that will pay you on a defined schedule over the course of the agreement.

This structured settlement comes in the form of an annuity that a defendant purchases to make the payments due to you. You may ask, "Why can't I get the amount I am awarded in court in one lump sum?". Depending on where you live that may be an option, though more and more states are requiring that structured settlements be used.

The reason for this is to protect you as the person getting the money from spending the money in a careless manner that jeopardizes you future financial well being.

Let's look at a real life example.

In 1973, Tiffany Adams was born in Memphis with severe brain damage that her parents blamed on her doctor. They sued for malpractice and received a cash settlement of $250,000 in one lump sum.

The family's attorney recommended investing the money to create an income that would help take care of Tiffany over the course of her life.

Well, as this is not a success story, you can see where this is going.

Tiffany's parents wastefully put the money in to the father's business. In a little over 10 years the money to care for Tiffany's was gone.

A few years later the parents divorced and Tiffany receives no child support. If that wasn't bad enough, in 1987 Tiffany was in an accident with her wheelchair that caused severe facial injuries. The family won a new settlement from the wheelchair company.

This time, however, Tiffany's mother insisted on a structured settlement for the payments. This allows Tiffany's mother to take care of her daughter without the fear of having someone take advantage of her settlement.

Accidents and malpractice are things you can not control. What you do, however, with the settlement money you receive is something you can.

Be prepared and be informed.

Protect you and your family by finding out more about structured settlements and structured settlement annuities.

A Structured Settlement Annuity: Comparatively Speaking

In earlier articles, we've seen the benefits of structured settlement annuities over lump sum payments. For some, this protects them from the temptation of spending the bulk of their payment on unsound or unwise investments. Protection and incoming cash flow over the long haul are what structured settlement annuities provide. However, not every person faced with a lump sum payment necessarily will be tempted to spend the money rashly. Obviously, there are people who are savvy investors and think that given the opportunity with a lump sum payment over a structured settlement annuity, they will be able to make more money investing on their own.

With that in mind, let's take a look how a structured settlement annuity compares with one of the most popular investment vehicles, the equity income mutual fund.

First, let's look at who issues the annuity and the mutual fund.
A structured settlement annuity is issued by a life insurance company. An equity mutual fund is issued by and investment company that pools the assets of multiple investors in equity securities.

Next, let's look at the long term capabilities of each to provide a lifetime income.
An annuity payment plan is created up front and is a predictable and dependable source of income that can not be outlived. A mutual fund can be a high paying investment. However it can also be highly volatile and unpredictable based on market conditions and can actually lose money and stop your earnings if the fund performs poorly.

What about guaranteeing the payouts?
An annuity is guaranteed by the issuer of the annuity based on the terms of the structured settlement. A mutual fund is solely dependent on market activity and thus can not be guaranteed.

What about costs?
The annuity has no cost associated with it. A mutual fund can be subject to a number of fees, like a sales load, yearly management fee, and marketing expenses. Even the lowest cost index funds have some costs associated with them.

What about keeping up with inflation?
A structured settlement annuity can have a cost of living adjustment incorporated into the annuity at the time it is designed. An equity mutual fund can outperform inflation based on how the underlying securities perform. However it is difficult to predict what the return will be and remember "past performance is not and indicator of future results."

But what about the dreaded T-word....Taxes??
A structured settlement annuity is tax free as long as the money received is the result of personal physical injury or physical illness. As income is earned from an equity mutual fund taxes, capital gains, income etc, must be paid.

What about flexibility?
A structured settlement annuity payment amount and schedule may not be altered at any time. Conversely, money can be moved in and out of mutual funds. However, taxes, sales loads etc may be applicable with each transaction.