Structured settlements have provided financial stability for injured claimants since the late 1970s, when Congress officially recognized their value in helping secure long-term financial well-being. Despite their clear advantages, these arrangements remain underutilized by many claims professionals today .
What Are Structured Settlements?
A structured settlement represents a series of tax-free, periodic payments designed to meet the long-term needs of a claimant . These payments are funded through annuities provided by highly rated life insurance companies, offering claimants secure, predictable income sources. Structured settlements are formally recognized under IRS Code Section 104(a), which ensures payments remain tax-free when tied to physical injuries or sickness .
Unlike lump-sum settlements, which can be spent quickly or mismanaged, structured settlements provide steady streams of guaranteed, tax-free income over time . They can be tailored to cover ongoing medical costs, lost wages, or any other financial needs arising post-settlement. This makes them particularly effective in cases involving long-term care, such as workers’ compensation, auto accidents, medical malpractice, or catastrophic injuries.
The Flexibility of Structured Settlements
The real power of structured settlements lies in their flexibility. Payment streams can be customized to match anticipated needs—monthly payments to replace lost income, periodic lump sums for future medical procedures or education expenses, and lifetime payments to ensure lifelong security .
For claimants with significant injuries, structures can include cost-of-living adjustments to maintain purchasing power over time. They can also be designed to provide guaranteed payments to survivors if the claimant dies prematurely, protecting family members who depend on the injured person’s support.
Benefits for All Parties
Structured settlements benefit not only claimants but also defendants and insurers. “One of the biggest advantages for claims professionals is that structured settlements can help facilitate negotiations, and inviting a structured settlement broker to prepare scenarios doesn’t cost a thing to either party,” notes Caryn Siebert of Gallagher Bassett .
By structuring payments over time, solutions can be found that satisfy both sides when negotiations hit walls. Claimants receive long-term security, while defendants achieve settlement finality at potentially lower costs than lump-sum payments . The ability to compromise without sacrificing core needs makes structures powerful negotiation tools.
Cost Savings Through Rated Ages
Structured settlements provide significant cost savings through “rated ages”—a concept unique to these arrangements . A rated age is determined by medical actuaries who assess a claimant’s life expectancy based on medical history and injury. Claimants may receive ratings older than their actual ages due to health conditions.
This rating reduces the overall cost of the annuity while still providing necessary lifetime benefits at reduced cost . For defendants and insurers, this means lower settlement costs. For claimants, it ensures lifetime income regardless of actual longevity. The current interest yield environment makes structures even more favorable for those interested in this approach .
Protecting Public Benefits
For claimants relying on public benefits like Medicaid or Supplemental Security Income (SSI), structured settlements can be designed to protect those benefits . By carefully planning payout amounts, claimants can continue receiving essential government support while benefiting from settlement proceeds. This is especially important for recipients who might not be equipped to manage lump-sum payments on their own.
In workers’ compensation cases, Medicare Set-Asides (MSAs) can be efficiently addressed using structured settlement products . Structured payments for MSAs cover claimants’ ongoing Medicare-covered medical needs while protecting the Medicare program’s funds. This ensures compliance with complex Medicare regulations and preserves future Medicare benefits .
The Importance of Early Involvement
Bringing structured settlement consultants into mediation early in the process is key to maximizing benefits. Claims professionals can access these experts at no cost, allowing live options to be created during negotiations . Consultants add value by crafting customized solutions addressing each case’s unique needs, helping close claims faster and more efficiently.
In today’s claims environment, structured settlements offer pathways to resolution benefiting everyone involved . They provide claimants with long-term financial security, offer defendants and insurers potential cost savings, and facilitate smoother, more efficient negotiations. For claims professionals looking to close claims with minimal friction and maximum benefit, structured settlements represent tools worth embracing.
