Structured Settlement
A financial arrangement where legal settlement money is paid out over time in scheduled installments rather than as a single lump sum. It's typically used in personal injury cases to provide long-term financial security for the injured party.
Example
“After winning her personal injury lawsuit, Maria chose a structured settlement that pays $3,000 monthly for 20 years instead of taking $500,000 upfront.”
Memory Tip
Think of a building's structure - payments are 'structured' like floors built over time, not all at once like a pile of bricks.
Why It Matters
Structured settlements protect injury victims from spending large sums unwisely while providing tax-free income and guaranteed payments. They ensure long-term financial stability for people who may have ongoing medical needs or inability to work.
Common Misconception
Many people believe they can easily cash out structured settlements for lump sums at any time. While factoring companies will buy structured settlements, they typically pay only 60-80% of the remaining value, and court approval is usually required for the transfer.
In Practice
A person awarded $1 million in a personal injury case might structure it as $2,000 monthly for life starting immediately, plus $50,000 payments at ages 50, 55, and 60 for major expenses. This provides steady income plus larger amounts for anticipated needs. The total payments over a normal lifetime could exceed $1.5 million due to investment returns, while providing guaranteed tax-free income even if markets crash.
Etymology
The term emerged in the 1970s combining 'structure' from Latin 'structura' meaning 'arrangement' and 'settlement' from Old English meaning 'agreement.' Structured settlements were formalized in U.S. law in 1982.
Common Misspellings
Compare insurance quotes and save
Related Terms
More in insurance
Other insurance terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.