Structured Settlement Annuities

Written by Jacey Harmon
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Insurance claims can be paid in either a lump sum or through structured settlements. Structured settlements are annuities funded and owned by the insurance company that provides for a payment stream to the claimant. There are reasons to consider accepting a structured settlement. There are disadvantages that an individual should be aware of, though, before using a this type of settlement to settle a claim.

How a Structured Settlement Annuity Works

Structured settlements are used by insurance companies to settle claims, usually large claims. Once all parties agree to a settlement, the insurance company buys and funds an annuity and assigns payments to the claimant. For the most part, the insurance company will utilize a fixed annuity but a variable annuity may be used in some instances. The annuity essentially guarantees the claimant an income stream for a specified period, ranging from months to several years.

For some, a structured settlement is an ideal way to settle an insurance claim. The payments are guaranteed for the specified period which can reduce a lot of stress when money is a problem. The income stream is often treated with special tax benefits as the payments are typically not considered true income. Structured settlements also provide for a larger sum of money over time than what one would receive with a lump sum settlement.

When deciding to accept a structured settlement, it is important to seek out counsel from a variety of sources. Often going through the process of settling a claim can be a stressful period in life and one does not always think clearly when stressed out. Family members, financial advisors, and tax consultants are all sources that should be tapped when deciding what to do. Of course if you change your mind, you can "sell" your settlement to a third party if so desired.

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