28 Jul How Structured Settlement Annuities Work
If you ever win a lawsuit or out-of-court settlement due to employer misconduct, medical malpractice, or some other form of negligence, don’t expect to see your compensation anytime soon. Unfortunately, settlement money can take quite a while to receive; in the meantime, claimants have to wait it out, which — especially for those who have injuries and therefore are unable to work — can be a major hassle.
Fortunately, there is an option available in the United States for people stuck in this situation: structured settlement annuities (SSA). They are the leading alternative to waiting for the courts to pay up. Why? Not only are they tax-free and encouraged by the federal government, they can provide your rightful compensation much faster and more effectively than the courts can. Moreover, they are ideal for claimants under 18; with SSAs, the money is kept secured for them until they are old enough to manage it themselves.
It’s no wonder that courts almost always approve of SSAs.
There are two major kinds of structured settlement annuities. An “immediate” SSA is one where the claimant starts receiving compensation immediately (or as close to it as possible). In contrast, a “deferred” SSA only beings payout out after a pre-settled amount of time. Similar to a retirement or pension plan, deferred SSAs hold on to the money, in order to let it accrue interest and other benefits. Payment plans for SSAs can be spread out to the client’s liking. A lump sum payment is possible, but clients who want to receive a steady source of income can make a SSA stretch for 20, 30, or 40 years — even for life! In fact, “Lifetime” annuities happen to be the most popular.
The federal government prefers SSAs and has offered the option since the 1970s. In the Periodic Payment Settlement Tax Act of 1982 (Public Law 97-473), Congress encouraged the use of SSAs (as well as regular structured settlements) to better cover injuries at the workplace. In the Taxpayer Relief Act of 1997, SSA benefits were extended to worker’s compensation cases, making it easier for workers injured on the job to receive funds.
In terms of how much a SSA “costs,” deferred annuities (such as fixed, fixed indexed, and variable) usually give the salesperson or financial advisor responsible for the deal 1-10% of the invested amount as a “sales fee” of sorts.