1. What is a structured settlement and how does it work?
A structured settlement is an arrangement where a
settlement from a personal injury or wrongful death claim
is paid out over time, such as monthly, annually, in lump
sums or in some combination thereof.
2. Who is responsible for making the ongoing
settlement payments?
After a settlement agreement is made, the defendant or
responsible party (the “annuity owner”) will purchase
an annuity contract from a life insurance company (the
“annuity issuer”) to fund the structured settlement.
Although the annuity issuer will be the party actually
making the payments, the annuity owner will remain
responsible for making sure the payments are made.
3. Why would I want to sell my structured settlement
payments?
Structured settlements are established for many
different reasons and are intended to take into account
the potential future needs of the individual and provide
a reliable source of future income. Unfortunately, this
setup can quickly become a burden because of a lack
of flexibility and an inability to adapt to life’s changing
events. Selling part or all of your structured settlement
payments can provide the financial flexibility you may
need to provide options for you and your family
4. How much will I receive for my future payments?
There are several variables involved in determining how
much you will receive. The key factors in determining
this amount are: how many payments you would like to
sell, how much these payments are worth, how far in the
future the payments are due, the risk of the insurance
company not paying and current interest rates.
5. Why is court approval necessary?
The majority of the states have enacted a model
Structured Settlement Protection Act, which requires an
annuity recipient to obtain a court order approving the
assignment of structured settlement payments. These
laws were passed in order to protect you and make
certain that the transaction is in your best interest.
6. Do I have to pay taxes on the proceeds from
the transaction?
As long as the original structured settlement payments
were tax exempt, the sale of the structured settlement
payments does NOT create any tax liability and the
purchase price you receive will not be taxable.
7. Can I sell just some of my structured settlement
payments or do I have to sell them all?
You can sell some or all of your payments. If you only sell
some of your payments, your insurance company will
continue to pay you the payments you still own when
those payments are due. The payments you sold will be
paid to the purchaser when they come due. That’s why
the payment price represents a discount — because
the value to you now is greater than the value to the
purchaser when the payments come due. The purchaser
will base its offer on what the value of the payments will
be when they are received.
8. How long does it take?
The process can take anywhere from 1-4 months
depending on the court’s schedule. In some states, these
transactions can be processed very quickly. In others, it
can take longer.
9. Will I be punished by my insurance company for selling
my structured payments? What if my agreement states
that this type of transaction is not allowed?
Absolutely not. Some policies state that this type of
transaction is not allowed or that the payments are not
assignable. Fortunately, in 2002, President Bush signed
into law Internal Revenue Code section 5891 permitting
these transactions.
10. How old do you have to be to sell some or all of your
structured settlement?
Once you turn 18, you’re considered an adult and can
access your settlement. This means a new 18-year-old
annuitant can decide to sell future payment rights —
some of them or all of them — to a buying company
for a lump-sum payment just like any other adult with
a structured settlement or annuity. Any transfer must
be considered fair and in the “best interests” of the
seller, according to the court and the state’s Structured
Settlement Protection Act (SSPA).
