At times, when the plaintiff in a case is awarded al large amount of money, the defendant, or someone acting on that person’s behalf, will request that payment be paid in installments over a specified period of time, rather than on a lump-sum basis. This is known as a structured settlement payment. To guarantee these payments, this is often done with the purchase of an annuity. Since the structure is flexible and the parties involve agree on the schedule, this may be paid in yearly installments or with a periodic lump sum every few years.

Tax avoidance is a major advantage when structured settlement payment is made properly. At times, the plaintiff’s tax obligations may be reduced significantly, and in certain cases, the settlement may even be tax free. It can also ensure that the plaintiff’s funds won’t be exhausted when they are needed to cover future needs or care. In the case of minors, they may receive payments for certain costs in their growing-up years, another disbursement for their educational expenses, and other payments as adults. When plaintiffs have suffered a physical injury, they may use the funds to purchase modified vehicles or medical equipment.

On the negative side, some people become frustrated when they receive structured settlement payments because they are unable to borrow against future income to buy a home or make some other major purchase. To avoid this problem, plaintiffs may want to accept a lump-sum payment and invest it themselves in order to realize a greater long-term return. They should also avoid being charged excessive commissions for creating the settlement, make sure that that the defendant doesn’t overstate the value of the settlement, and determine if their lawyer has any financial interest in the financial services they recommend. If a settlement is large, it may be best to purchase the annuities from several insurance companies.