Insurance Installment Payments

Written by Jacey Harmon
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Insurance companies often use installment payments to pay off claims and settle lawsuits. In most cases, the installment payments are funded by an annuity. These annuities provide the payment stream for the claimant or settlement beneficiary. There are advantages to insurance companies for offering installment payments to settle claims and lawsuits.

Advantages for Insurance Companies to Use Installment Payments

Installment payments benefit the insurance company by reducing the costs involved with settling a claim or lawsuit. The insurance company can reduce costs without needing to eliminate or reduce offered benefits. This is possible because the insurance company funds the payments with an annuity. The annuity experiences compounded growth while payments are being made. The growth of the annuity is what allows insurance companies to keep costs low.

The insurance company will purchase the annuity with a lump sum of money. This allows the insurance company the opportunity to eliminate any debt to the claimant that may otherwise show up on the balance sheet. Clean balance sheets are vital for insurance companies to maintain high ratings. Using the annuity to fund the settlement reduces any pressure on the insurance company's future cash flow. Keeping costs low and cash flow high is a good way for the insurance company to maintain competitiveness in the market place.

Insurance companies are not the only ones who benefit from installment payments. Claimants and plaintiffs benefit by knowing they will receive the future payments. Payments are not treated as taxable income for the beneficiary. Studies have shown that about 90 percent of people who receive a substantial settlement waste the money in a matter of years. With installment payments, the beneficiary is not likely to squander the money provided from a settlement.

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