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Annuity Definition

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Annuity Definition

An annuity is a type of bank account similar to a CD or savings account. It can be opened by an individual as part of a savings plan. An annuity can also be used as part of a personal injury lawsuit settlement.

What Is a Personal Injury Settlement?

When one party sues another party for a personal injury, the parties may choose to settle their lawsuit out of court.  Therefore, instead of waiting on a court judgment to determine the outcome of the case, the parties agree to a settlement agreement. If the defendant agrees to pay damages the plaintiff as part of a settlement agreement, they can do so via a:

A lump sum settlement is paid to the plaintiff in one payment. A structured settlement is paid over time in installment payments.

How Are Annuity Payments Set Up?

Personal injury settlement structured settlement payments are set up via an annuity company. The company then sends the payments to the plaintiff in installments in accordance with the settlement agreement.

Is an Annuity the Same as a Structured Settlement Cash Payout?

No. An annuity is paid over time. When a structured settlement is paid out in a single cash payout, it is paid in one lump sum. For example, if a plaintiff wanted their payment at one time instead of monthly payments, they would sell their annuity to a structured settlement company in exchange for a lump sum payment.   

What Are the Benefits of an Annuity?

The benefits of an annuity as a personal injury settlement include:

  • Avoidance money mismanagement problems
  • Distribution funds over a longer period of time than government subsidies
  • Tax-free status, unless the annuity is controlled by the plaintiff

What Are the Disadvantages of an Annuity?

Some disadvantages of an annuity are:

  • The money is not given all at once
  • Delayed payments if the insurer goes bankrupt
  • Lower amount than a lump sum payment would be, depending on how many parties are involved in the lawsuit

Should I Talk to an Attorney about an Annuity?

Yes, an annuity is beneficial, but a complicated financial matter. To make sure you receive the most from your settlement, you need to talk to a personal injury attorney.

Photo of page author Taelonnda Sewell

, LegalMatch Legal Writer

Last Modified: 06-23-2015 06:04 PM PDT

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