Structured Settlements

Understanding the Power of Structured Settlements

Personal injuries resulting from accidents or malpractice thrust victims into confusing territory. Many professionals, including attorneys, claims representatives and judges, get involved in settling cases. As a claim nears settlement, questions arise regarding how to best handle the monetary award. Whether your claim needs to help support your family, provide for retirement or ensure financial independence despite a disability, your settlement choice is an important decision with lifelong consequences.

You have two options in settling your claim: A lump-sum payment; or a structured settlement. A lump-sum payment is where the entire amount is paid when you finalize your settlement. A structured settlement is where you receive cash up front, as well as a series of tax-free cash payments over a specified time period.

A lump-sum payment often garners interest because of the appearance of control (“I can invest this myself and do just fine.”) But the drawbacks are serious. Tax liabilities, market fluctuations, brokerage fees and market rates of return hamper long-term income potential, putting you and your family in serious financial risk.

On the other hand, the federal government, claims professionals, attorneys, judges – and the professionals at Stauber Associates – advocate structured settlements as the most lucrative option, offering guaranteed income and financial security. In fact the federal government provides tax advantages to structured settlements that cannot be received when choosing a lump-sum payment.

Lucrative Benefits

Structured settlements, typically funded through a special life insurance annuity or U.S. Treasury obligations, provide guaranteed, tax-free income paid on a schedule that’s tailored to your specific needs. Whether you’re elderly and need immediate monthly income or looking to ensure college funds are available for your children, an appropriate structured settlement – prepared by an experienced professional – guarantees the money is available when you need it.

In addition to principle security, structured settlements offer excellent returns. Consider this hypothetical example from the National Structured Settlements Trade Association (NSSTA): Two $100,000 settlements are invested – one as a lump-sum payment in a conventional taxable portfolio at an interest rate of 6%, and the other in a structured settlement earning the same rate. After 20 years, the total net income from the lump-sum investment (after tax considerations) is $158,991; the structured settlement generated $213,994 – 35% more.*

Government-Endorsed

The tax-free benefit derived from a structured settlement was instituted by the federal government as an incentive for claimants to choose it as their form of payment. According to the NSSTA, the government regulates structured settlements and is a strong proponent of their use, as indicated in the Periodic Payment Settlement Act of 1982. After a strong, 15-year track record of success, Congress approved structured settlements for workers compensation cases. And in 2002, legislation was passed that contains additional protections that benefit recipients.

A high-quality, strong life insurance annuity as a funding source for your payments is one of the safest options available. If the stock market crashes or interest rates plummet, your funds remain. Payments can also incorporate cost of living adjustments, stepped increases or future lump sums for added flexibility. When choosing an insurer, look for one with an A rating or better. Billions in assets, a high net yield on investments and long-term market performance are also good indicators of financial strength.

Ample Security For Most Any Situation

Most anyone compensated for a personal injury realize benefits from a structured settlement. The following examples illustrate some of the typical ways claimants benefit:

A single woman disabled by an accident can use a structured settlement to ensure regular income, with payments scheduled in a way that keeps her financially independent. Furthermore, she can include her settlement in a special needs trust, which allows for financial security while maintaining eligibility for government programs, such as Medicaid and Supplemental Security income.
A father injured on the job can design funding for his children’s education, such as college tuition or grade school tutoring (especially helpful if the injury keeps him from helping his children with homework).
A husband victimized in a malpractice case can effectively provide for his wife’s future, in the event he dies before her.
A young girl hit by a truck and recovering from a resulting coma can structure payments to meet her healthcare needs – both now and in her adult years.
A 68-year-old man, injured in a car accident, can accept structured settlement payments without affecting his Social Security benefits. In addition, selected beneficiaries obtain the same tax-free benefits on any money still owed him upon his death.

Professional Counsel Critical

When considering a structured settlement, give careful thought to your choice of consultant. Stauber Associates recommends you choose a consultant that:

Holds a proven track record in the business, with long-term experience in structured settlements.
Contracts with all the life insurance companies with markets in structured settlements.
Continually monitors rating services – A.M. Best, Moody’s, Standard & Poor’s and Fitch.
Offers trust services, in addition to annuities, in case you need to establish a special needs trust.
Belongs to the National Structured Settlement Trade Association (NSSTA).
Maintains extensive professional liability insurance coverage.
Provides services to you at no charge.

If you or a member of your family becomes a victim of an accident, fiscal responsibility is crucial. You need maximum protection, for both your current and long-term needs. Structured settlements offer security, viability and, most importantly, peace of mind.

Charles E. Stauber has 20 years’ experience in the insurance industry and is a structured settlement specialist.

* Assumes a 27% federal and 5% state income tax, $500/month withdrawal for living expenses and full cash-out after 20 years.