Structured settlements were originally adopted as a way to protect settlement recipients. Yet today, nearly 40 years after they became common, structured settlement annuities remain poorly understood.
If you’ve been awarded a settlement or are considering one, here are the key benefits you need to know about.
What Are Structured Settlements?
Structured settlements happen when you sue someone and either win the case in court or agree to settle out of court. The defendant agrees to pay you a total amount of money, say $400,000. Instead of paying it to you all at once, they pay a qualified third-party company.
The third-party intermediary then pays that money out to you over time. For example, they might contract to pay you $10,000 a month for the life of the debt. This arrangement is a structured settlement.
What Are the Benefits of Structured Settlements?
Courts first adopted structured settlements to help recipients handle large settlement awards. Recipients often experience less stress and make better financial choices when they receive smaller, more regular payments than when they get large sums all at once.
That isn’t the only advantage of structured settlements, however. Here are the top seven most impressive structured settlement benefits.
Tax and Asset Protection
Tax law gives special treatment to structured settlements. They are often tax-free. They are also protected in other ways.
For example, in many cases, creditors and family members can claim rights to portions of an individual’s income in the event of debt or divorce. Structured settlements cannot be claimed the same way.
Structured settlements make it easy for recipients to plan and organize their finances. They can keep recipients in their homes, prevent them from losing vehicles, and provide stability during times of stress and upheaval.
Cost of Living Adjustments
Many structured settlements contain cost of living clauses. When this happens, recipients receive more money over time as their award increases to balance out inflation.
These payments are exceptionally secure. Direct deposit and other optional features can make them even more so.
No Market Fluctuations
One of the biggest benefits of structured settlements is that they are not affected by fluctuations in the stock market. Recipients’ awards are consistent and secure and do not lose value in any circumstances.
Recipients pay no fees associated with their settlement awards. The company handling the settlement pays for everything.
No Interruption of Other Benefits
Receiving an annuity does not affect beneficiaries’ eligibility for Social Security, Medicaid or Medicare, public assistance programs, or other income-based supports. In that respect, it is “free money.”
The Other Benefit
Structured settlements also offer a hidden benefit. They can be turned into lump-sum payments at any time. Recipients can sell their rights to some or all of their settlement and receive a lump-sum right away from a financial services company.
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Smart Money Moves
Structured settlements can help you make good money choices. So can learning more about how the financial world works. Check out our Money Section for more tips, tricks, and information on how to handle your money well today.