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When most people receive some extra cash, their first impulse is to spend it. Whether a person won the lottery, received an inheritance, early retirement benefits, or settled an insurance claim, odds are that unless something is done to protect it, the cash will soon disappear.
Structured settlements were developed to help protect recipients from financial misfortune. A structured settlement is an agreement between an injured party and the insurance carrier. It is based on a financial plan for immediate cash and future tax-free payments, which takes into consideration the future needs of the family. It is also a program designed to maximize the injured party’s settlement by providing secure and tax-free payments, for life if requested.
The Internal Revenue Service considers lump-sum cash settlements tax-free. However, any money earned from this settlement is taxable unless invested in municipal bonds. With a structured settlement, the injured person receives a tax-free accrual and payout of interest.
Most structured settlements include up front cash and for attorney fees, if applicable. The insurance company purchases one or more annuities from a highly rated life insurance company, which in turn makes the periodic payments to the injured person.
These guaranteed payments can be made for virtually any length of time, even for the recipient’s lifetime. In the event of the individual’s death, a guaranteed portion of the settlement may be made to the estate or a named beneficiary such as a relative or child. The plan may even defer funds in cases involving minors or be designated to a beneficiary such as a scholarship fund or religious organization. Including periodic increases in the benefit package or providing lump sums at future dates can counter inflation. A structured settlement may be designed to include educational funds, retirement income, or even mortgage payments.
One of the most important benefits of structured settlements is the protection they offer. Regardless of what happens to the stock market, the economy, or interest rates, the benefits from a structure are guaranteed.
Settlement funds can disappear in a number of ways, including bad investments, loans to friends and relatives, and unwise or frivolous purchases. Because a structured settlement is a guaranteed source of tax-free funds, it is very difficult for even the sophisticated investor to match the guaranteed rate-of-return generated by a structured annuity. It is a win-win concept for the family.

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