Settlement Services

Structured Settlements

Structured settlement is a term most commonly applied to personal injury settlements in which deferred periodic payments are made to the plaintiff in addition to or in lieu of a single cash sum award.  The structured settlement concept has been shown to be a powerful and effective tool in the settlement process.  Often it is the inclusion of periodic payments, generated by the structured settlement, which resolves the disparity between the demand and offer.  Both the plaintiff and the defendant should resolve certain issues before agreeing to include a structured settlement as a party of any settlement.   These issues are discussed below.  While the concerns of the defendant and the plaintiff differ there is a certain amount of overlap.  Because plaintiffs are typically in the most vulnerable position, their issues will be discussed first.   Four key concerns of any plaintiff considering a structured settlement are: safety; rate of return; taxability and preservation of settlement funds.

Safety:  Because the defendant is typically allowed to assign its liability for ongoing payments provided by the structured settlement, the plaintiff should inquire as to the financial strength of the assignee responsible for the future payments.  When annuities are used in funding the periodic payments an inquiry should be made as to the life insurance carries rating as determined by the various financial rating agencies.  (In large settlements the use of several life insurance companies afford additional security.)  In certain instances the life insurance company’s assignment company which owns the policy and guarantees the payments to plaintiff will provide the plaintiff with a secured interest in the policy.  This type of an arrangement provides the plaintiff with a key recourse in the event of a default or failure by the annuity company or its affiliate assignment company.  While most annuity companies do not currently provide for this type of protection, IBAR has developed a secured creditors arrangement through its U.S. Treasury funded Custodial Bond Account (CBA).  Under the CBA arrangement all payments to the plaintiff are generated by U.S. Treasury Bonds which are in turn held by City National Bank or by Merrill Lynch.  More detailed information regarding the CBA is provided following the discussion of the plaintiff’s “four key concerns”.

Rate of Return:  Because funds set aside for structured settlement payments cannot be invaded by the plaintiff, it is most important to obtain the best rate of return at the time of settlement.  Life insurance companies can vary widely on the rates of return offered depending on a variety of factors too numerous and complex to discuss here.  Whenever possible the plaintiff should obtain several annuity quotes before deciding on a particular payment program.

Preservation of settlement funds:  This is perhaps the greatest achievement of the structured settlement concept.  Too often a cash settlement has been negotiated only to be dissipated through poor financial actions or in some cases fraud.  This is particularly unsettling in cases involving minors or permanently disabled adults.  Any funds which are designated for structured settlement payments may not be invaded, and for this reasons they are protected from potential creditors.

The greatest advantage gained by the defendant who chooses to include structured payments as a part of the settlement is that they often bridge the gap between its settlement offer and the plaintiff’s demand.  In most cases the defendant should insure that any continuing liability be eliminated through a qualified assignment of its liability to a financially sound assignee.

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