Annuity Payments in Auto Collision Structured Settlements

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 What is a Structured Settlement and How Does it Apply to an Auto Accident Claim?

In some cases, a lawsuit is necessary in order to obtain damages in an auto accident claim. In a personal injury claim, the damages award that is issued to a plaintiff may involve a large sum of money, sometimes in the hundreds of thousands of dollars.

In these cases, there may be concerns regarding distributing the award in one lump sum payment, such as tax consequences, overspending, etc. In some cases, however, the dispute may be resolved in a pre-trial settlement.

A settlement occurs when the parties involved negotiate with each other and their insurance representatives in order to reach an agreement with regards to monetary compensation for their injuries and property damage. Monetary payments in a settlement may be in the form of a structured settlement, in which the defendant agrees to render payments to the plaintiff in periodic installments, such as in the form of monthly payments.

This is different from a lump sum payment, where the plaintiff receives the money all at one time in a single payment. A structured settlement may be advantageous when the automobile accident involves an unusually large sum of money.

What is a Structured Settlement Cash Payout?

In the context of a structured settlement, the term cash payout may have several different meanings. Receiving a lump sum may be referred to as the cash payout of the settlement.

In these cases, the plaintiff chooses to cash out the settlement amount rather than receiving monthly payments. A structured settlement technically refers to the structured annuity payments rather than a lump sum payment.

In most cases, a structured settlement cash payout refers to an arrangement where a financial company purchases the plaintiff’s structured settlement. The financial company then distributes an immediate lump sum to the plaintiff in exchange for their structured settlement. A plaintiff may wish to exercise this option if they are locked into inflexible periodic payments but need additional cash immediately.

In these cases, a plaintiff cashes out their structured settlement through a funding company. Typically, the plaintiff may have a choice of selling their entire structured settlement or only a portion of the settlement.

There are advantages and disadvantages to a structured settlement cash payout. Benefits of selling a structured settlement may include:

  • Release from inflexible annuity payments;
  • Access to a greater portion of the settlement award;
  • In some cases, the individual can make a profit by selling their settlement to a funding company; and
  • Avoiding losses from periodic payments due to inflation, annuity commissions, and other factors because periodic payments can actually reduce the overall amount that the plaintiff receives in comparison with an initial lump sum payment.

Some of the disadvantages of structured settlement cash payout may include:

  • The sale of structured settlements is not always allowed by law, depending on the laws of the jurisdiction and the nature of the structured settlement;
  • The plaintiff may be more susceptible to fraud and scams. There are many fake funding companies that take advantage of individuals who have won structured settlement awards. For example, a fake funding company may promise the plaintiff a payment, never issue the payment, and then use their personal information for fraudulent purposes; and
  • Distribution of large amounts of cash can be unfavorable, especially if the plaintiff is young, inexperienced, or will overspend.

It is important to weigh these factors when considering a structured settlement payout. In some cases, an individual may want to cash out their structured settlement simply out of impatience or impulsiveness. A lack of guidance can cause serious losses for the plaintiff, so it is important to obtain financial and legal counseling when dealing with structured settlements.

Are Annuity Payments Available in an Auto Accident Settlements?

Annuity payments are typically available in automobile accident settlements. An annuity payment, in this instance, refers to the method by which the defendant’s insurance company obtains the funds to make the settlement payment to the plaintiff. Typically, an annuity company will sell an annuity payment package to the defendant’s insurance provider.

The annuity company then disperses the plaintiff’s settlement proceeds in the form of monthly payments. In most cases, the annuity company charges a fee or annuity rate in order to make a profit on the transaction.

An annuity is essentially a contract that ensures there are sufficient funds to pay the plaintiff’s settlement award. In automobile collision cases, an annuity may be necessary if the settlement amount is large.

What is an Annuity?

If an individual is considering accepting a pre-trial settlement, it may be helpful to be familiar with annuities. In general, an annuity is a financial instrument that may be used for creating a long-term savings or retirement plan.

In general terms, an annuity is a contract entered into with an insurance or finance company in which an individual agrees to make a series of payments that will be retired to them at some point in the future.

What are the Pros and Cons of Structured Settlements and Annuities vs. a Lump Sum Payment?

In cases involving a settlement for a small monetary amount, a structured settlement will likely not be necessary. In more serious cases, however, or for cases involving loss of life or severe damages, a structured settlement is an option.

There are several advantages and disadvantages of structured settlements. The advantages of a structured settlement include:

  • They tend to deter or avoid money mismanagement issues, as many individuals tend to overspend when given a lump sum payment;
  • They help distribute the settlement funds over a longer period of time, as many individuals who are disabled as a result of an automobile accident become dependent on government subsidies after their lump sum payment is exhausted;
  • A structured settlement can be accompanied by substantial tax breaks. Annuities are typically tax-free so long as the plaintiff is not in control of the funds;
  • An annuity payment is typically managed through a financial professional and can be further tailored to fit a plaintiff’s needs; and
  • Annuity payments may be combined with a partial lump sum payment to meet a plaintiff’s immediate financial needs.

Some disadvantages of structured settlements may include:

  • The tax benefits may be revoked by the government if the plaintiff retains too much control over the settlement proceeds;
  • Although state insurance laws typically provide for protection in case an insurer goes bankrupt, an insolvent insurer can still present complications such as delays in payment;
  • Economic conditions may result in lower monthly payments. Because of this, some plaintiffs prefer an immediate lump sum payment; and
  • Since there are multiple involved, including the plaintiff and defendant, their insurance companies, and possibly an annuities company, a structured settlement can sometimes result in a lower overall payment to the plaintiff as opposed to a lump sum payment.

Do I need a Lawyer to assist Me with a Structured Settlement Payment?

It is essential to have the help of an experienced auto lawyer if you have been in an automobile accident and are considering a structured settlement. As the plaintiff, you will need to make an informed decision regarding your compensation. Many of the drawbacks associated with a structured settlement can be alleviated if you have the help of a professional such as a financial advisor or a lawyer to help manage your payments.

Laws governing annuities may be complicated and can vary from state to state. Since most settlements already involve a lawyer, they can advise you regarding the form of your settlement payment. You should approach your settlement award as you would any significant financial gain, with care and responsibility, so it can benefit you for years to come.


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