Structured Settlements: Definition & Benefits (2025)

What Is a Structured Settlement?

A structured settlement is an alternative to receiving one large amount of money after winning a lawsuit. Instead, you would opt for periodic payments over a set number of years.

One of the simplest structured settlement examples would be getting awarded $100,000 in damages and requiring the defendant to pay you $10,000 a year for 10 years or $5,000 for 20 years.

You can customize your settlement to suit your exact needs, however. This means that you can choose from among a few different types of structured settlements.

Large Initial Payment

One common option would be to receive a large initial payment followed by subsequent smaller ones. If you need to pay medical bills and you’ve been unable to work for a while, you’re likely facing significant financial strain. A large payment allows you to handle any overdue bills and pay for necessary items.

For example, you could use this payment to buy a new car if your old one was totaled in a rear end collision. The rest of the settlement payments would work as your lost income.

Payments That Change Over Time

You have the option to get smaller payments at first and step these up as the years pass. It can be a good option if you want to have more available funds during retirement.

Alternatively, the settlements can begin higher and decrease over time. This can be helpful if you expect your income to increase in the future but need more help now.

Additional Payments for Special Circumstances

Another choice you have is to set regular structured settlement payments but allow for additional ones to be made if there are special circumstances that require funds. An example would be if you need to pay for your child’s tuition.

Delayed Payments

Perhaps you want to ensure you have money when you retire. In this case, you can delay your payments until a designated time.

How Does a Structured Settlement Work?

To come to a structured settlement agreement, the defendant and plaintiff generally have to negotiate a settlement first. Then, either one can propose the option of a structured payout instead of a lump sum payment.

The money for structured settlements usually comes from annuities that the defendant purchases. Buying a structured settlement annuity removes the responsibility from the defendant, who might inadvertently miss payments, and lets a company do this for them.

A structured insurance settlement option like an annuity tends to offer more stability for the plaintiff, too. The process will usually start with the defendant getting structured settlement quotes to decide on the best possible option for everyone involved.

Pros and Cons of Structured Settlements

Structured settlement lawyers can help clients weigh the pros and cons of these options before making a decision after receiving settlements for accidents.

Pro: Stream of Tax-Free Income

One of the most important reasons to choose a structured settlement after winning accident compensation is that you can get an income stream wholly shielded from taxes. This can be ideal for people who suffer debilitating injuries that won’t let them work.

Con: Less Flexibility

With a structured settlement, you don’t have the option of accessing your settlement funds whenever you want. If emergencies arise, you can’t get additional payments unless you specifically chose to receive more payments when preparing the settlement.

Pro: Potentially Life-Long Payments

The structured settlement payments you receive will potentially be available to you for the rest of your life, depending on your specific arrangements.

Con: Administrative Fees

The insurers managing the structured settlement funding could charge substantial fees to oversee the annuities. That could eat into your settlement amount.

Pro: Easier Money Management

Receiving a large sum of money can require hiring people who can help you manage that money. Structured settlement investments may be an easier option, or you can choose not to invest at all. Either way, it can be much simpler to secure smaller payments.

Con: Solvency Issues

Although it rarely happens that the insurance company providing the annuity for structured settlement goes out of business, it’s still a possibility. That could be an added worry you don’t need. If you receive the settlement all at once, you don’t have to stress over solvency issues.

Pro: Ability to Provide for Loved Ones

Some structured settlements have death benefit clauses that allow you to designate beneficiaries, but you can always leave your settlement to loved ones via your will.

Make the Right Choice With Help From ConsumerShield

Ultimately, the choice of whether a structured settlement is the best option for you comes down to your particular needs and circumstances. Your goals for the money you receive can also impact your choices.

For example, if you received a workers’ comp settlement that you want to donate to fund research into better safety equipment, a lump sum payment may be a better option. If you want to ensure you have an easier retirement, however, a structured settlement is the way to go.

At ConsumerShield, we can connect you with top lawyers in your area while ensuring that you understand your rights. Contact us to start getting the structured settlement help you need today.