Annuity and Structured Settlement

Often when talking with clients i get this question, what is the difference between an annuity and structured settlement. Then i ran across this article and thought this explains it very well.


The Difference Between an Annuity and Structured Settlement

08/12/2016 06:51 pm ET

The annuity and the structured settlement are two legal mechanisms used to pay out money to a person. There’s a big difference between the two, though. You need to be aware of the ins and outs of both of them if you’re going to be able to choose between the two.

There’s no doubt that structured settlements have been on the increase. This makes it even more critical that you find out about them now. By reading this guide you’re going to get an idea of the differences between the two.

What are Structured Settlements?

Structured settlements come with pros and cons but are pretty straightforward because they’re exactly what it says in the name. They come from lawsuits involving personal injury or liability, the majority of the time. They nearly always come as a result of a defendant settling out of court, rather than taking the issue to trial.

A structured settlement is exactly the same as a lump sum, except the amount is paid out in installments, rather than all at once. These are deferred payments and can be paid out in any way you see fit.

For example, you might agree to regular payments once a month. You might also agree to regular payments every year. It really depends on your needs and what the defendant wants to do. Both legal teams will discuss what’s best for the plaintiff’s quality of life.

What are Annuities?

The confusion between these two financial tools comes as a result of the way in which they can both pay out. An annuity will pay out annually, but so can a structured settlement. The difference is annuities are bought and they come through investment firms and insurance companies. You’ll find that lottery winnings can be paid out in the form of an annuity to stop the winner from spending too much.

An annuity is a type of investment. It can be used to have better control over your money. It can also be used to make a good return on your investment. Annuities can be invested by your investment firm into various funds. This gives you the potential to take your savings fund and multiply it. It also gives you the chance to lose your money, though. That was demonstrated this past year in the UK when annuity yields dropped 8% after Brexit.

So What’s the Main Difference Between the Two?

The structured settlement is a legal tool used to deliver compensation to those who have suffered a personal injury of some kind, or someone who has admitted liability. This could be for something as simple as breaking a leg or something as serious as wrongful death.

The amounts for a structured settlement can vary from amounts as low as $100,000 all the way to multimillion-dollar settlements.

Structured settlements are also customizable according to your needs. You can receive payments as big or as small as you like. Annuities are relatively fixed in how often they pay out. Retirement annuities will only pay out after you reach a certain age.

You Can Sell Your Structured Settlement

There’s no reason why you have to hold a structured settlement after you’ve been issued it. You can easily sell the rights to someone in an exchange for a lump sum. Most of the time you’ll be selling it to a life insurance company or an investment firm. They will make you an offer and you’ll be able to receive a lump sum.

From that moment you’ll stop receiving any remaining payments on your structured settlement. Instead, the company you sold it to will receive the money.

Obviously, you wouldn’t receive the full amount of the structured settlement. There would be little point in anyone buying it if they paid you the full value of the settlement. You’re essentially paying for the convenience of releasing the structured settlement at a time you choose.

Is a Structured Settlement Always the Best Idea?

A structured settlement in court isn’t always the best idea. For smaller payouts it makes little sense to have the money paid out in installments purely because the payments would be so small it would be pointless. Once you start hitting six figures a structured settlement can be a great financial aid.

Last Word - The One Similarity

The only real similarity here is that they act as a stable income to fulfill your needs. Annuities and structured settlement can provide you with the peace of mind needed for you to live your life the way you want to.

Do you have any experience taking out a structured settlement after a civil suit?