What exactly is a structured settlement?

A structured settlement is a financial arrangement where you receive periodic payments over time from a legal settlement or insurance claim. These payments are typically tax-free and provide long-term financial security.

How are structured settlements created?

Structured settlements are typically created as part of legal settlements, where the defendant or insurance company purchases an annuity that provides periodic payments to the recipient over time.

What are the benefits of structured settlements?

Structured settlements provide tax-free income, long-term financial security, protection from spending the entire amount at once, and guaranteed payments over time.

Can I change my structured settlement?

You can sell all or part of your structured settlement payments, subject to court approval. This allows you to access funds sooner if needed.

What is a Structured Settlement? | Complete Guide | Smarter Payouts

✓ Last Updated: November 18, 2025

Understanding Structured Settlements

A structured settlement is a financial arrangement where you receive periodic payments over time instead of a single lump sum, typically resulting from a personal injury lawsuit, workers' compensation claim, or insurance settlement. These payments are designed to provide long-term financial security and are protected by federal and state laws.

✅ Key Benefits of Structured Settlements

Tax-Free Payments: Under IRC Section 104(a)(2), payments for physical injury or sickness are excluded from federal income tax
Court-Approved Security: Payments are guaranteed by highly-rated insurance companies with A- or better A.M. Best ratings
Customized Schedule: Payment plans tailored to your specific needs and life circumstances
Protected from Market Volatility: Payments are unaffected by stock market fluctuations or economic downturns
Creditor Protection: In many states, structured settlement payments are protected from creditors and lawsuits

How Structured Settlements Work

When you receive a structured settlement, your settlement amount is converted into a series of guaranteed payments funded through an annuity. Here's how the process works:

Settlement Agreement

After resolving your case, you and the defendant agree to a structured settlement instead of a lump sum payment. This is typically recommended by attorneys for large settlements.

Annuity Purchase

The defendant (or their insurance company) purchases an annuity from a highly-rated life insurance company. This annuity becomes the funding source for your payments.

Payment Schedule Design

Your payment schedule is customized based on your needs. You can choose monthly, quarterly, annual payments, or a combination. You can also schedule lump sums for specific future dates (college, retirement, etc.).

Guaranteed Payments Begin

Once the annuity is in place, you begin receiving tax-free payments according to your agreed-upon schedule. These payments continue regardless of market conditions.

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Payment Schedule Options

Structured settlements can be customized to meet your specific financial needs:

📅

Monthly Payments

Regular income for living expenses and bills

📆

Annual Payments

Larger payments once per year for major expenses

💰

Lump Sum + Payments

Immediate cash plus future periodic payments

🎓

Future Lump Sums

Scheduled payments for college, retirement, etc.

⏰

Life Contingent

Payments continue for your entire lifetime

📊

Period Certain

Fixed payments for a specified number of years

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Common Questions About Structured Settlements

A structured settlement is a financial arrangement where you receive periodic payments over time, typically from a legal settlement. These payments are tax-free and court-approved, providing long-term financial security.

Yes, you can sell your structured settlement. The process is legal and requires court approval to ensure it's in your best interest. Many people sell to access their money sooner for needs like medical bills, debt relief, or investments.

Structured settlements work by converting a large settlement into a series of guaranteed payments. These payments can be scheduled monthly, annually, or in other intervals, and are typically tax-free under federal law.

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How to Sell Your Structured Settlement

Step-by-step guide to selling your structured settlement payments legally and safely.

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State Laws & Requirements

Review structured settlement laws and court approval requirements in your state.

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What is a Structured Settlement?