Structured settlements are a method of compensating people who have been injured as a direct result from another party who is in the wrong. At one time there were only lump sum payments available for those who were injured, but after 1970 there was a need for this to be changed.

A structured payment is a contract that is usually known as a periodic payment, which lasts for a fixed amount of time or for the life of the injured party, or may be tailored to suit individual needs. For example, it can be arranged to give lump sums to the injured party for replacement of personal equipment such as wheelchairs or special equipment directly related to the injury, as well as periodical payments.

Structured settlement payments were originally introduced in Canada in 1979, and since then have almost completely replaced lump sum payments. This type of payment structure has become popular in many other countries over the world including America, Australia and some European countries.

Structured settlements reduce the costs of providing compensation as well as make sure that the injured party is looked after for the amount of time needed to recover from their injuries, the terms and conditions of structured settlements vary from country to country.

Benefits Of Structured Settlements

One of the most important advantages of a structured settlement is that the injured party cannot spend the money prematurely as easily as with a lump payment. These types of payments are especially important for those who, through their injuries are likely to need the settlement money for their lifetime.

Studies made prior to the introduction of structured settlements indicated that after 2 months of a settlement, whether it was from insurance, inheritances or even winning the lottery, 25% of the recipients had nothing left of their lump payment sum. By the end of the first year 50% had nothing left, and after 5 years 90% of the people had nothing left.

Another benefit of Structured settlements is they are tax-free. Congress amended the federal tax code to provide 100% exemption from federal and state income taxes to encourage people to use structured settlements rather than lump payment settlements in the late 1980s.

Structured settlements are also very flexible and can be set up to suit each individual's needs. The simplest form of this is an equal payment every month for the number of years a person is expecting to be incapacitated.

Although payments don't necessary need to be equal each month, and can allow for extra expenses needed for the individual, this is what makes structured settlements suitable for a wide variety of injuries. An attorney, or structured settlement broker usually discusses the injured persons needs and gives details and advice on arranging a payment schedule that will benefit the injured person.

How Payments Are Determined

In most cases the injured person and the responsible party will discuss medical care and basic living costs and calculate them to come to an agreement. Often a settlement broker, or an attorney may be used to help provide calculations on the long-term costs and needs.

Once the structured settlement has been agreed on, the party at fault will then fund payments that reflect the agreed amount. It is advisable to discuss any structured settlement with an attorney or a professional settlement broker as settlements such as this involve very complex calculations.

Who Needs A Structured Settlement

Minors or those who are considered to be unable to handle large amounts of money are ideal candidates for a structured settlement.

Other people who can benefit from structured settlements are those involved in compensation cases or severe injury cases, where the injured person can no longer work and has a family to support. Wrongful death cases where the victim has a spouse and children that needs to be supported. It is estimated that the more severe an injury is the more likely that a structured settlement will be used.

Selling Your Structured Settlement

Although structured settlements were designed to pay a set amount of money over time. It is possible however to cash in on them using a financial institution that deals in buying the settlement amount of money that is still owed to a victim. Then allowing part, or the entire amount of money still owed to a victim to be taken out in a lump sum.

The financial institution will often discuss the victim's circumstances, as well as their needs and the amount of money they receive in installments. It is recommended that those who have structured settlements only use the amount of money they need in a lump sum payment to reach their needs, rather than taking the whole amount owing to them.