What Is Structured Settlement and How Does It Work

What is Structured Settlement?

Structured settlement is financial aid or payment based on court decision or negation to support any cost, either direct or indirect, as compensation paid periodically. In general, this kind of settlement is what a person or company pays as financial support after the court, negotiation, or mediation. To distinguish between structured and lump sum, it has periodic payment that's not in single installment.

In regular term, the payment will be sent at certain amount. This is the main difference between the lump sum that pays all money in one payment process. There are several reasons why court or negotiators decide to rely on this method. The settlement has to follow regulation or law as the guideline to protect both parties.

Benefits of Structured Settlement

In court, lawsuit will result in one party that has obligation to pay certain amount of money as compensation. If the amount is huge and out of the financial level, that settlement is impossible to complete in single payment. This is why they decide to put everything on structured settlement. It makes sure the payment is done periodically in order to lower the risk when financial difficult happens.

Another benefit is financial controlled payment. Some people might not know what they do when having lump sum. It will end up in the situation where money is not being used as it supposed to be. Structured settlement will ensure all money is in proper order regarding the spending and utilization.

The settlement will continue until the due time and all money is paid completely. If something happens on recipient, the relatives or heirs still receive their right. Meanwhile, the payment is income for victims for the rest of life due to disability or permanent injury. However, money is tax-free and no interest, but protected by insurance company. Therefore, the amount of money is similar from initial payment until the end of period.

How does it work?

The amount of money that should be paid regularly depends solely after the negotiation or court decision. Both parties involved in lawsuit will try to settle how much money as settlement. The calculation includes tax, interest, and fee. It might not happen in court session because one party or both do not want to continue the case into trial. In that case, both should negotiate with the help from mediator until they reach the decision. After the money is settled, the next stage is how to proceed the payment. The money will be put into account in bank as annuity, but not investment. Then, the bank will send money automatically until all settlement is done.