STRUCTURED SETTLEMENT
Structured settlement is a type
of insurance or finance agreements where claimants agree for tort claim of
personal injury. In structured settlements agreements claimants agree for
periodic payments not for lump sum payments. Structured settlement is widely
claimed for injury cases or product liability like a children have some birth
defects then the term structured settlement comes in use. A structured
settlement was first heard in Canada where a child was affected from Thalidomide.
It became very popular in USA in mid 1970s which was chosen as an alternative
for lump sum settlements.
Reason behind the popularity for
structured settlement was changing policies of IRS; if claimants meet the
requirements of IRS then the higher income tax will be waived. If there are
higher interest rates then the present values will be reduced and hence lesser
annuity premiums. At present structured settlement is a part of stationary tort
low in major countries like Australia, Canada, and USA. Structured settlements
are often called as asset backup security because it includes spendthrift
requirements, income tax and several benefits. Structured settlements are
referred as periodic payments and when it is incorporated in judgment trial
then it is called ‘periodic payment judgment’.
Definitions of Structured settlement
In India Congress adopted tax
rules in Public Law 97-473 for injured person or families to encourage
structured settlements. From 1986 structured settlement is in use from the
sections of Internal Revenue Code. In 1997 under Taxpayer Relief Act, Congress
used structured settlements for the workers compensation to compensate the cost
of the injuries met at the workplace.
Once the claimants are met with all the requirements then the respective
person will receive periodic tax free payments. Congress has laid down the
bright path for the structured settlement. Then claimant can assign an
obligation to the company assigning structured settlement for the funds. In U.S
Treasury Obligations fund returns are little less and inflexible payment modes.
In this way, claimants can close their liability and can receive long term
periodic payments from the structured settlement company.
Legal liabilities of structured settlement
The claimant resolves its tort
claim with the insurance carrier for the settlement agreement for the lawsuit
dismissal of claimants, the insurer agrees for the long term periodic payment.
The insurance company then raises the claim obligations; to fund this
obligations insurance company can take two ways: either it will purchase an
annuity from other insurance company or the claim funds will be assigned to the
third party.
Financing path
Structured settlements make the
claimants wait for the funds. However the claimant can opt for cash or advance
cash in some case. Many companies offer to buy the part of structured
settlements or annuity payments for the upfront lump sum payments. For example,
claimant have signed an structured settlement agreement for over 20 years, then
that companies can pay for the house, clear the debts, or education fees on
claimants behalf. Recently in 2012, a worker’s compensation payment under the
structured settlement agreement was denied by the Tennessee Chancery Court.
Also, if claimants don’t have patience to wait for the periodic payments then
they can deal with the purchaser under proper legal conditions. Though the
claimant will receive the lesser amount but he/she will receive the money on
spot.
Final words on structured settlement
In some cases it is good for the
claimants but sometimes it proves bad too. It all depends on conditions if the
claimants want the immediate claim then they have to receive the lesser amount
or if they can wait then they can receive long term periodic cash for structured settlement payments from the finance company.
