Structured Settlement Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Structured Settlement, written in plain English, along with examples of how it is used.

What is Structured Settlement?

“Compensation for damages that is not paid through a single lump sum, but is paid out over time through multiple payments. The structure is tailor-made for individual cases and may include an immediate payment to cover special damages. Typically, payment is made by purchasing an annuity from a life insurance company. Under IRC 104 (a)(2) code, structured settlement benefits are tax free. Cash may be received fro structured settlements by selling them to a broker who purchases annuities.

History and Meaning of Structured Settlement

Structured settlement is a way of paying compensation to a person who has suffered an injury as a result of negligence by another party. It was first introduced in Canada in the 1970s as an alternative to lump-sum payments. The idea behind structured settlements is to provide a steady stream of income to the injured party over a period of time rather than one lump sum payment. This is designed to ensure that the injured party is able to cover their expenses over an extended period of time without worrying about financial uncertainty. Structured settlements have since grown in popularity in many countries around the world, including the United States and the United Kingdom.

Examples of Structured Settlement

  1. John was involved in a car accident which left him with a permanent injury to his back. His lawyer negotiated a structured settlement which would provide him with a monthly payment for the rest of his life.

  2. Mary was injured at work and was no longer able to work. Her employer agreed to a structured settlement which would provide her with an income for the rest of her life.

  3. Henry was injured in a slip and fall accident on a property managed by a large company. He was awarded a structured settlement to compensate him for his injury.

Legal Terms Similar to Structured Settlement

  1. Annuity - a financial product designed to provide a steady stream of income over a period of time. An annuity is often used to fund structured settlements.

  2. Lump-sum payment - an alternative to a structured settlement, where the injured party is paid a single amount of compensation at once.

  3. Personal injury - an injury suffered by an individual as a result of the negligence of another party. Structured settlements are often used as a way of compensating for personal injuries.