Many people do not know the difference between structured settlement annuity and structured settlement claims. The following article will cover this topic in detail.
The primary difference between the Structured Settlement Annuity and Structured Settlement Claims is that a person who purchases an annuity receives periodic payments. In contrast, a person who opts for a claim will receive one large sum of money, which can then be invested or spent at once. This is the reason why annuities are often favored over claims: they provide steady income to recipients without putting their assets at risk of loss through investment fluctuations. Many experts believe that an annuitant has more retirement security than someone receiving periodic payments instead of one lump-sum distribution.
The purchase of an annuity is relatively straightforward: the buyer, called the annuitant, pays either a lump sum or a series of installments to an insurance company. In exchange for this investment, the insurance company promises to provide several payments for the annuitant. The payments are usually fixed—they are the same amount regardless of the insurance company’s investment performance—but sometimes they can be linked to a stock index, meaning that a particular market index determines their size.
Structured settlements, on the other hand, began in 1976 when attorney Daniel F. Keeshin designed a way for people who had received personal injury lawsuits to receive compensation more gradually than in one large sum of money. If a person feels that they can afford to wait years for a settlement, this is the ideal way to receive money without incurring too much risk. A structured settlement benefit is paid out as a periodic sum regularly. One of the most common options is to receive installments throughout a given number of years.
Not only are structured settlements offered by private companies, but state governments and some cities also offer them. For instance, Illinois guarantees that 100% of all personal injury lawsuit amounts will be paid out as structured settlements.
Some states have structured settlement laws that regulate the process of structured settlements. Illinois has established a statute regarding structured settlements, the Uniform Interest Act, which is often referred to as “the Statute.” The information in this article refers to Illinois law.
If a lawsuit award is not going to be paid as an annuity, it will most likely be paid as one sum. A common exception is settlements involving workers’ compensation cases. Workers’ compensation payments are fixed, meaning they never change; they only depend on how long the injured employee has suffered from their injuries.
Structured settlements are usually more lucrative for the defendant in a lawsuit verdict than lump-sum payments. When individuals receive a structured settlement, they are entitled to tax exemption on the portion of the structured settlement counted as investment income; this is not allowed for annuity payments.
When receiving a structured settlement, another thing to keep in mind is the rules set in place for forced distributions. Forced distributions occur when the annuitant cannot cover their living expenses once-monthly payments are made. The insurance company will order a forced distribution of the annuitant’s assets and use them to cover their monthly costs.
When a person receives a series of payments for a personal injury lawsuit, those payments must be reported as taxable income. However, if the person receives an annuity, those payments are not taxed until the first distribution is made.
The surest way to receive a structured settlement and guarantee that it will be paid is to enter into an annuity contract with an insurance company and then have the insurance company purchase an asset that can subsequently pay out periodic amounts.
It is not possible to convert structured settlement payments into annuity payments. Therefore, this should be decided before receiving any money from the settlement.