by John Darer® CLU ChFC CSSC
A structured settlement annuity is a "longevity insurance" product that provides one or more fully customizable payment streams tied to the terms of a settlement agreement and release. Depending on the case, a qualified assignment or a non qualified assignment, Court Order and proof of birth and other requirements may be needed.
A structured annuity is different from a regular annuity. Where a structured annuity is used in the resolution of a personal injury lawsuit for payment of damages under IRC 104(a)(2), or the settlement of a workers compensation claim under IRC 104(a)(1), as part of a structured settlement, the payments received by the payee*** are income tax free. The term structured annuity is commonly used interchangeably with the term "structured settlement". Technically the term "structured settlement", which is defined under the Internal Revenue Code *, refers to the form of case resolution, whereas a structured annuity is one of two types of "qualified funding asset"** that may be used to fund a structured settlement. It may also be used to fund a structured judgment, such as a judgment under New York Article 50A or 50B.
A structured annuity may also be underwritten. Structured settlement underwriting means that the annuity issuer may consider medical issues of the annuitant in pricing the cost of the structured benefit streams. Only the cost of lifetime structured payments or life contingent structured payments are affected by a so-called "rated age". Depending on your position in a case, a high rated age means that it will cost less money to finance lifetime or life contingent structured payments, OR that the yield will be boosted to the plaintiff annuitant for a given set of funding as part of a structured settlement offer.
A structured annuity may also be used in conjunction with anon qualified assignment (also known as a "non qualified structured settlement" or "tax deferred structured settlement") to resolve disputes that do not involve personal physical injury or physical sickness. Creative litigators (plaintiff or defense) and financial advisers who think creatively and can get their arms around the concept (or retain a settlement consultant or settlement planner who does) can enhance their effectiveness in a wide variety of litigation settlement applications.
Some of the more "out of the box examples (click on title for more information):
A structured annuity can exclusively be obtained from a select cadre of appropriately licensed insurance agents and brokers of which this author is one. Be wary of false advertising by companies which advertise "structured settlement quote" yet their mission is to offer cash to you in exchange for your rights to receive structured payments.
If you have questions about a structured annuity, or want to obtain a structured settlement quote, please call this author, toll-free, at 888-325-8640
* see IRC 5891
** see IRC 130(d); an obligation of the US government is another form of "qualified funding asset"
***also called "annuitant", although sometimes may be different