Unfortunately, historical evidence shows lump-sum payments made to injured parties and their families as a result of a legal settlement can quickly dissipate, leaving victims without income when they need it most. In 1983, the Periodic Payment Settlement Act was signed into law to help resolve this problem by promoting the use of structured settlements, which are regularly scheduled, periodic payments to injured parties and their families over an extended time rather than in a lump sum cash payment.
Structured settlement funds are placed in annuities, for tax-free or tax-deferred growth for the affected party. By choosing a structured settlement, individuals and their families realize a safe and steady stream of payments that can last a lifetime. Often, for low-income Americans, such payments are depended upon to cover essential costs such as mortgage payments, accident-related medical expenses, and other basic living expenses.
In 2019, over $6.5 billion was placed in structured settlement products in the U.S. and was allocated to over 26,000 individuals. These individuals represent injured parties ranging from victims in car and workplace accidents to users of hazardous consumer products to victims and family members of victims of mass shootings. Structured settlement consultants advise claimants on accepting a structured settlement versus a lump sum payment, with the intention of protecting the individual’s long-term financial security. Investors are now pouring money into these contracts as the fallout from the pandemic, the recession, and political turnover makes income planning more daunting than ever.
If one considers some of the major looming threats such as potential tax increases, inflation, overstretched stock market, bond yields so low that they no longer act as ballast during a stock market tumble, and most importantly…..Mortality Risk……The worry that you may outlive your monthly income…It is no wonder that injured claimants are opting to annuitize portions of their settlements as opposed to the traditional stock and bond portfolios. Structured settlement annuities have a unique capacity to address many issues when used wisely. Their insurance component can protect against investment losses and provide tax-free lifetime income. They can also offer considerably more income than would be generated by Treasuries and Certificates of Deposit.
Today there are some additional nontraditional structured settlements that share the advantages of the traditional annuity-based structure with some equity market-based exposure. This blended option provides claimants and attorneys with some terrific options to help maximize one’s returns during a time of lower interest rates. For more information, please email or call. We are available for firm presentations as well as webinar meetings.