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FAQ for Trial Attorneys
  1. Introduction
  2. What is a Structured Settlement?
  3. Advantages to the Plaintiff
  4. Disadvantages to the Plaintiff
  5. Managing the Disadvantages
  6. Appropriate Cases
  7. Inappropriate Cases
  8. Case Size
  9. Why Annuities?
  10. Annuity Pricing
  11. Reduced Life Expect. Discounts
  12. What is an "Assignment"?
  13. Structure of the Deal
  14. Insurance Company Ratings
  15. The Closing Process
  16. What Settlement Brokers Do
  17. How Are SS Brokers Paid?
  18. If the Defense Has Their Own Broker, How will My Broker Be Paid?
Home Page > "How to" For Plaintiff Attorneys >ABC's

Structured Settlement Disadvantages

 Choosing a structured settlement does involve certain trade-offs:

  • Lack of Liquidity Once a structured settlement is established, claimants have no direct access to the funds. Assets intended to fund future payments will not belong to them, nor can they cash them in. Insulation from ownership of the assets is what makes the structured payments tax-free: the claimant must avoid “constructive receipt” or “economic benefit” of the funds in order to qualify for the tax advantages available under current Internal Revenue Code rules.

  • Default Risk This is the risk that the party responsible for future payments will not pay on time or in full. Although default risk is not unique to structured settlements, their extra-long duration (many lasting 30, 40 or even 50 years into the future) makes management of this risk a priority.

  • Limited Investment Choices Tax rules limit the universe of investment classes available for funding most structured settlements to two: government bonds and annuities purchased from state-regulated life insurance companies.*

*See IRC Section 130.