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Getting to Know Structured Settlement Annuities – And How You Can Use Them
from:Structured settlements and annuities are terms you may often hear but do you really know what they are? Yes, they are closely related concepts but are separate just the same. It would do you well to get familiar with the terms and to know the differences between them. After that, knowing how to get the best deal out of them becomes all the more easy for you.
Simply put, a structured settlement is an insurance arrangement between two parties. It usually is part of a resolution for injury and/or damage claims with a court overseeing the drafting of such an agreement.
Apart from such applications, structured settlements are also used in cases where compensation in cash is necessary. Such cases include labor and employment cases (such as backpay), liabilities from professional practice (such as medical malpractice) and suits between domestic relations. Even lottery winners may receive their winnings through structured settlements.
Structured settlements come in three general payments: 1. an initial downpayment in lump sum, 2. serial monthly payments, and 3. annual payments in lump sum called annuities.
The initial downpayment is made to cover initial expenses that directly result from the triggering incident. Monthly payments will constitute a large portion of structured settlement cases, while annuities, while less common are still effective options for structured settlements.
An annuity is a method of paying the amounts that comprise the settled amount at periodically. In most cases, that period was on an annual basis and thus the word ‘annuity’ was coined.
Most contracts that involve annuities constitute the payor to pay either a lump sum amount or premiums (series of payments) to an insurance company. The insurance company in turn will regularly send the fixed amount to the payee on an annual basis.
The nature of an annuity, where regular amounts are paid to an individual, makes it effective and efficient in cases where cash settlements are necessary. A good example would be cases that involve compensation.
A suit over personal injury may find that the injured person should be compensated for his losses. The offending party will use a structured settlement annuity to pay the injured party. Instead of settling the compensation in one go with a lump sum settlement, the injured person will receive tax-free income over a specified period (usually taking several years).
Investments are also used as a reason for taking on an annuity contract. This is what is called an investment-structured annuity. A senior citizen, looking to enjoy his hard-earned money may go for something like this where he receives monthly or annual amounts as pension.
While this kind of annuity does present a very good opportunity, you should study it carefully. Consult with your financial adviser who will look at your personal finances and determine whether an annuity can sustain your intended lifestyle and help you manage it accordingly.
Furthermore, always remember that annuities are facilitated by companies who are still in the business of making a profit. In that sense, you are in a good position to look around for the one with the best deal to offer. For you to determine that, you will need the advise of your financial consultant.
Your lawyer may need to come in to go over the contract you are about to enter. As structured settlements usually involve a considerable amount of money, the last thing you want to do is to lose it or be liable to pay because of some legal technicality.
By making the necessary research and consulting the right people who can advise you regarding your particular situation, working with structured settlement annuities can get the most out of your money. Managing it well can mean that even after years have passed your money still continues to work for you.
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