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What is a Structured Settlement?

Structured settlements occur when a defendant agrees to pay periodic payments to a plaintiff in lieu of a lump sum after the completion of a tort suit. In a tort suit, one party was wronged due to another person or party’s negligence in cases such as medical malpractice, product liability or personal injury. During the litigation process, the court will establish a total amount of money that should be due to the plaintiff based on damage done and hardships caused to them from the other party’s negligence. Once litigation is settled, instead of receiving one lump sum, a stream of payments is set up and usually paid out by the defendant’s insurance company. The liability is held by the insurance company, and typically each company uses their own annuity company or department that takes responsibility for issuing the payments to the claimant. The insurance company is the issuer of the annuity or structured settlement payments, but the owner of the payments is the annuity assumption company that has purchased the payments from the issuer. However, the insurance company also has the option to buy an annuity from a life insurance company to fund the payments that are owed to the person or parties after the litigation process. In this case, the life insurance company is then responsible for funding the annuity payments to the plaintiff in the same way that was established in court. Either way, this stream of payments that the claimant is receiving is what is called a structured settlement.

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