When someone receives a large settlement from a personal injury lawsuit or a legal claim, they often have the option to receive the money in one lump sum or as a series of periodic payments. Choosing the latter creates what’s called a structured settlement annuity — a financial tool that offers long-term security and stability.
In this article, we’ll break down what a structured settlement annuity is, how it works, its benefits and drawbacks, and what you need to know before selling or purchasing one.
What Is a Structured Settlement Annuity?
A structured settlement annuity is a type of financial arrangement in which a person receives compensation from a lawsuit over time rather than all at once. These payments are typically arranged through an insurance company, which funds the annuity.
This setup is common in:
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Personal injury claims
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Medical malpractice settlements
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Wrongful death cases
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Workers’ compensation settlements
The annuity is designed to provide tax-free, guaranteed income over a set number of years — sometimes for the recipient’s lifetime.
How Does a Structured Settlement Work?
Here’s how a structured settlement annuity typically unfolds:
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Court Settlement or Jury Verdict: A lawsuit is resolved with the agreement to pay compensation.
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Settlement Terms Defined: Parties agree on the payment schedule — monthly, annually, or customized intervals.
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Purchase of an Annuity: The defendant (or their insurer) purchases an annuity from a life insurance company.
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Payments Begin: The injured party receives scheduled, tax-free payments as per the agreed-upon structure.
Advantages of a Structured Settlement Annuity
There are several strong reasons to choose a structured settlement:
✅ 1. Tax-Free Income
Structured settlement payments from personal injury claims are exempt from federal and state taxes, making them financially efficient.
✅ 2. Steady Income Over Time
Recipients receive consistent payments, which can help with long-term budgeting and avoid the risk of spending a lump sum too quickly.
✅ 3. Customization
Settlements can be structured with future lump sums (e.g., for college tuition) or increasing payments to account for rising costs.
✅ 4. Protection from Creditors
In many states, structured settlements are protected from creditors or bankruptcy proceedings, offering additional financial security.
Disadvantages of a Structured Settlement Annuity
While structured settlements are generally safe and stable, there are potential downsides:
❌ 1. Lack of Flexibility
Once the annuity is set, the payment terms cannot easily be changed. This can be limiting if the recipient’s financial needs evolve.
❌ 2. Inflation Risk
If the payment schedule isn’t indexed for inflation, the real value of the money can decline over time.
❌ 3. Selling Comes at a Cost
Selling future annuity payments for a lump sum usually means accepting a discounted amount — sometimes significantly lower than the total value.
Can You Sell a Structured Settlement Annuity?
Yes, but it’s not as simple as selling a regular financial asset.
If you find yourself needing a large amount of money — for medical expenses, debt repayment, or starting a business — you can sell some or all of your future payments to a structured settlement buyer (also called a factoring company).
🔍 Important: Court Approval Is Required
Because structured settlements often involve vulnerable individuals, any sale must be approved by a judge to ensure it’s in the seller’s best interest.
What to Consider Before Selling Your Annuity
Before you sell your structured settlement annuity, evaluate:
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How much you’ll lose in the discounted rate
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Alternative financing options
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Your long-term financial stability
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The reputation of the buying company
Use a structured settlement calculator to compare offers and make sure you understand the total present value versus what you’re giving up.
Who Buys Structured Settlement Annuities?
There are several major companies that specialize in purchasing structured settlements, such as:
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J.G. Wentworth
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Peachtree Financial
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Stone Street Capital
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SenecaOne
These companies often advertise heavily and may offer cash now in exchange for future payments — but the trade-off is that they often pay significantly less than the full value.
Alternatives to Selling
If you’re hesitant to sell your structured settlement but still need cash, consider these options:
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Personal loans with collateral
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Reverse mortgage (if you own a home)
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Negotiating partial sales of your settlement rather than all future payments
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Using a financial advisor to restructure your overall budget
Structured Settlements and Minors
When a structured settlement is awarded to a child, courts often require the funds to be structured until the child reaches adulthood. This ensures the money is preserved and used responsibly. In such cases, parents or guardians cannot access the funds early without court permission.
How to Choose the Right Structured Settlement Option
Here’s what to consider when deciding how to structure your settlement:
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Your age and health
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Ongoing medical needs
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Dependents and family obligations
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Future plans (education, home purchase, etc.)
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Investment alternatives
Work with a qualified financial planner or settlement expert to design a plan that balances long-term security with flexibility.
Final Thoughts
A structured settlement annuity offers a powerful tool for long-term financial stability, especially for those recovering from life-changing injuries or lawsuits. While the predictability and tax advantages are attractive, it’s crucial to understand the limitations and think carefully before choosing to sell future payments.
Whether you’re considering receiving a structured settlement or selling one for a lump sum, consult with legal and financial professionals to ensure you’re making the best possible decision.
📌 Pro Tip: Always compare offers from multiple structured settlement buyers and insist on full disclosure of fees and terms.