Structured settlements are used as an alternative to a lump sum settlement in a claim. These first came about in the 1970's in the USA, and Canada.
They are legitimate parts of the law in several countries including USA, Canada, England and Australia with each country defining the law in its own way.
These are commonly referred to as periodic payments.
In the USA, both state and federal laws have their own definition of structured settlement.
An injured party settles a tort suit with the defendant or its insurance company to settle and dismiss a lawsuit.
The defendant or their insurance company agrees to make periodic payments to the injured party.
There are two ways that the insurer will handle this.
The insurance company paying the debt will make a deal with a third party to assign the payments to be handled by that third party. The third party may buy an annuity and assign it to pay off the debt over a period of time.
The insurer keeps the periodic payment obligation and finances it by buying an annuity with a specific pay off value from a life insurance company. This pays off the same amount as the debt. A lot of people getting a structured settlement want to have a lump sum in hand so as to avoid waiting many years to get it all.
Using a settlement purchasing company to get your money in a lump sum you will not get the full amount, but a smaller amount, as they have to make a profit for the deal. The percentage varies depending on the company. This arrangement is preferable to many people considering their age or personal financial situation.
There are IRS laws governing tax on settlements.
