Wednesday, April 24, 2013

Structured Settlement - Definition, Tax Benefits And Payout

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A structured settlement isn't one of the most commonly used terms in our daily life. Structured settlement is a series of periodic payments that are made to the claimant by the defendant in settlement of a personal injury claim. The claimant will have the option to opt for either a single cash settlement or a structured settlement. Though the idea of a lump sum amount of money may seem very tempting and will often force you to daydream about possible investments, it should be known to you, that it will be taxable. Whereas payments received under the structured settlement scheme will be tax-free.

Structured settlements are known to be very flexible. The term of payment, start and end date and type of payment can often be changed. The annuity payments that are made to the claimant are issued by an insurance company that has been approached by the defendant. These insurance companies have brokers that work based on standardized commissions. The brokers can help the claimant to design their payment schedule, term and other details. If you so deem, you may even choose to use the structured settlement as a post-retirement benefit and start receiving the payments after a certain number of years. However, it should be noted that all modifications to the settlement terms and conditions should be made before you sign the agreement. Structured settlements flexibility ends right after it has been signed. Once signed a structured settlement cannot be changed.

Explaining structured settlement is easier said than done. The structured settlement process works in multiple layers. First, the defendant will send the total money for the structure to an insurance company subsidiary called the assignment company. The subsidiary or assignment company will now buy the annuity from its parent company, and subsequently make periodic payments to the claimant as the contract requires.

structured settlements are every beneficial for tax-savings and also have asset protection facilities. Due to its deferred tax nature, structured settlements are most beneficial when payments are planned over a longer period of time.

But, in the meantime, if you encounter any kind of contingency and require a lump sum payout rather than the slow, periodic payments, you may opt to sell your structured settlement. Structured settlement is also a very common means to finance long-term purchases like house, car or college education. The settlement can be sold partly or wholly. One of the first steps to sell off a structured settlement is doing your due diligence about the purchaser. It is important that you are aware of the purchaser's reputation and business history, before you jump into a deal with him. The purchaser should be licensed and insured. In case the company faces any threat of being bankrupt, it will still be liable to pay you.

In most cases, the purchaser is an insurance company. The insurance company will purchase the right to receive periodic payments from the claimant and in return provide a one-time payment to the claimant.

The next step is obtaining a quote from your preferred purchaser. All you need to do is provide them some relevant information and they will get back to you with a quote.

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