In its short history, structured settlements have already proven to be a viable answer to the problem of how to properly compensate personal injury and wrongful death victims.
Inflation and legal awards continue to escalate. Structured settlements are proving to be more financially attractive for resolving expensive claims than the traditional lump sum approach.
The structured settlement is simply a method of paying a compromise sum of money, rather than using a conventional lump sum settlement. Funding is usually accomplished through the purchase of an annuity or series of annuities. Ordinarily, the structured settlement is part of a package constructed to cover the up-front costs; such as for prior medical expenses, legal costs, lost income, attorney fees, and other immediate needs, as well as to provide a lifetime income. The total package is tailored to the facts and needs of each case.
Structured settlements provide significant benefits to all parties involved - the defendant, the claimant's attorney, and most of all, to the claimant. As experts in these settlements, we believe the injured party and his or her family are the best served when the defense and representatives of the plaintiff work together. Our experience suggests that we can serve a vital role in designing payment variations that will serve the best interests of all parties.
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A structured settlement is a proven, effective settlement option that combines up-front cash and deferred payments to settle bodily injury, wrongful death or workers' compensation claims. Plaintiff attorneys, judges, defense attorneys and workers' compensation boards advocate the use of structured settlements because they often can better meet claimant's needs for financial security and pay significantly more benefits than cash settlements.
Capital Planning, Inc. works together with various life insurance companies ("Annuity Carriers") to provide this attractive settlement option for claimants by designing and implementing settlement annuities tailored to the claimant's specific needs. Claimants earn a good investment return, which under current law, can be received free of income tax.
The purpose of a structured settlement, as opposed to a lump sum settlement, is to provide the injured party with a guaranteed stream of tax-free payments, which will provide for the claimant's needs now and in the future.
The best means of providing these guaranteed payments is by using an "annuity" in which the benefit schedule is prepared in advance. This way, the claimant is not burdened with investment decisions and management worries.
Simply put, an annuity is a legal contract between an insurance company and a third party, which guarantees periodic payments to a named payee. Unlike life insurance, which pays upon a person's death, an annuity makes payments while the person is living.
Using a single premium payment, the annuity contract is funded with proceeds from the settlement. This arrangement is described in the settlement documents.
Benefit payments are then made directly from the annuity carrier to the claimant, as scheduled.
Under current tax law, the payments received by the claimant from this annuity contract are tax-free as a result of Internal Revenue Service Code Section 104(a)(2), which states:
"…gross income does not include the amount of any damages, other than punitive damages, received (whether by suit or agreement) on account of personal physical injuries or physical sickness."
In July of 1979, the Internal Revenue Service handed down Revenue Ruling 79-220, which is the leading and controlling precedent for this concept. This ruling was codified by Congress in 1983 with the passage of Public Law 97-473. Back to Top >
An Agreement
A negotiated settlement is reached, which usually includes cash and periodic payments made over time.
Funding
The annuity is funded by the insurance company on the claimant's behalf. Future payments are funded by an annuity from a financially secure A.M. Best's "A", "A+", or "A++" rated life insurance company. Claimants cannot own or control the annuity policy, but receive the payments stipulated in the settlement agreement/release agreed to by all parties.
Payments
Periodic payments are made directly to the claimants by the selected life insureance company.
The Obligation
The paying parties transfer their obligation to make future payments to a third party assignment company. The annuity carrier guarantees these payments.
Individual Plans
A structured settlement can be tailored to individual and family needs and desires. This is an important feature of a structured settlement. It can be planned with consideration given to the claimant's circumstances now and in the future.
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More Money
Claimants can receive significantly more money with a structured settlement than with a cash settlement.
Tax-Free Payments
According to current law, payments received by claimants or his/her beneficiary are not considered taxable income as long as the structured settlement complies with Internal Revenue Code provisions.
Security
A good investment return is assured. Payments are made by a financially secure, A.M. Best's "A", "A+" or "A++" rated annuity carrier.
Immediate Cash
Claimants usually receive cash up-front to pay expenses, such as attorney fees, unpaid medical bills or other items the claimant feels are important.
Income/Lump Sums/Lifetime Income
Monthly or annual payments provide guaranteed, prescheduled secure income. Money is available for future expenses, such as medical care, housing or future education needs. Lump-sum payments help provide protection against increased cost-of-living expenses or as security for a spouse, child, or other dependents of deceased claimants.
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Structured Settlement
A combination of cash and periodic payments designed to help meet an individual's or family's financial needs.
Beneficiary
Person(s) designated to receive the benefits of a structured settlement if the claimant dies before all guaranteed benefits are paid. Changes in the beneficiary designation must be made in writing to the owner of the policy.
Up Front
Cash paid immediately upon settlement to a claimant. Commonly, it pays attorney fees, medical expenses, debts or other personal expenses. A structured settlement usually includes both up-front cash and deferred payments.
Life Expectancy
Statistically, the remaining number of years a person of a given age is expected to live.
Lifetime Income
A stream of payments paid monthly or annually that will continue for as long as the claimant is living. This may include a period of guaranteed income (see "GUARANTEED PAYMENTS") below.
Ownership/Control
To insure the tax-free status of deferred payments, a claimant must not have actual or constructive receipt of the money used to purchase the annuity, and may not control or have an ownership interest in the annuity.
Lump-Sum Payments
Single payments made at specified dates in the future. They are used to supplement income and provide additional money for specific needs, such as the purchase of a car or the down payment on a home.
Assignment/Transfer of Obligation
Internal Revenue Code Section 130 provides that the party(s) responsible for funding the settlement agree to the periodic payments for the injured party(s), then transfers those obligations to an assignment company. The assignee agrees to make the payments and purchases the annuity from the life insurance company with the payments made directly to the injured person(s).
Assignee
The structured settlement annuity is owned by a third party assignee, which is affiliated with the life insurance company issuing the annuity. The claimant has no ownership interest in the policy, but has a legal right to receive the future payments as specified in the settlement agreement/release.
Education Funds
Periodic payments made during the time a claimant requires financial assistance for education or training.
Guaranteed Payments
All payments stipulated as guaranteed are paid to the claimant if living or to the designated beneficiary if the claimant is deceased.
Guaranteed Rates
The life insurance company guarantees its settlement annuity rates for short periods of time (normally 7-10 days) due to the unpredictability of the financial market.
Life Contigent Payments
Paid only if the claimant is living on the due date of the payment. Unlike guaranteed benefits, these payments do not pass to the beneficiary after the death of the claimant.
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A Structured Settlement
Now that it is time to settle your claim, two settlement options are available. The first is a lump-sum payment where the entire amount is paid to you at the time of settlement. A second option is a structured settlement in which you receive an initial sum "up-front", and the rest of the settlement is paid in a series of payments. The amount and frequency of these payments will depend on your future needs and individual wishes.
While the lump-sum settlement is one possibility, the many advantages of a structured settlement have made them a frequently chosen settlement option. One big reason is that a lump sum settlement is often gone within five years. Here are other reasons why a periodic payment makes good sense.
Income Tax-Free Payments to You
As a result of the Periodic Payment Settlement Act of 1982, all payments to you are tax-free. The Act allows for the tax-free accrual of interest on the sum of money used to fund your periodic payments. As a result, you are likely to receive greater benefits than would be available to you had you chosen to invest the money yourself.
Guaranteed Income
Unlike a lump-sum settlement, a structured settlement will provide guaranteed payments at predetermined intervals, which gives you financial security.
Flexibility to Meet Your Needs
A periodic payment settlement can be designed to meet your individual needs. You may wish to provide for regular ongoing income, future education expenses, supplement a retirement fund, or simply provide for security against inflation or unforeseen circumstances. A structured settlement can accomplish these objectives, and a great many more, depending on your needs and wishes.
Maximum Security
Your payments will not be dependent upon financial markets or the economy, and will provide a secure source of funds for you in the future. The amount and duration of your periodic payments are guaranteed by the life insurance company.
Beneficiary Protection
In the event of a premature death, your designated beneficiary would also continue to receive the future guaranteed payments. These payments are income tax-free to your designated beneficiary as well.
No Brokerage Fees or Expenses
Capital Planning, Inc. is paid a commision by the life insurance company providing your annuity benefits. You will not be billed for our services.
Simply put, a structured settlement is an excellent option. When you consider all of the advantages, a structured settlement may be the right choice for you.
We will be happy to provide you with examples of how a structured settlement can be designed for your claim, and we will carefully review these examples with you. Please keep in mind that these proposals can be changed in a number of ways to provide you with a payment schedule that is tailored to your individual needs.
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