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How structured settlements work

What is an annuity?

An annuity is simply a way to turn a lump sum of money into a payment stream. The most common form of annuities is those you receive from a lawsuit or from lottery winnings. These funds are spaced out over time in order to benefit the recipient and provide a reliable stream of income. An annuity is purchased from and issued by an insurance company.

How is an annuity structured?

There are many ways that an annuity can be structured but the main two are immediate and delayed annuities. With an immediate annuity, payments begin right away. Delayed annuities provide payments later, after the balance has accumulated interest.

Why would I want my annuity to be structured?

Often times, an annuity or settlement will be structured in order to benefit the recipient. If someone demonstrates financial irresponsibility, a structured settlement can help curb this and make sure the person is provided with living income payments. Age is also a factor with annuities- a younger person may be more likely to spend large sums of money quickly where as a structured annuity would combat this. You may also choose to have your annuity structured in order to receive higher payments in the future, after they have earned interest, if you don’t need the money right away.