Let’s say you file a tort claim in court and the company that you are suing agree to settle, now you are in a quandary on how to take the settlement. Your lawyer has been blabbering about lump sum settlement and structured settlement. So as to help you with the confusion, let me explain to you how structured settlement works.

Structured settlement is an arrangement wherein the claimant accepts to resolve a personal injury claim in periodic payments. The instalment payment is structured in a way that will suit the claimant’s needs. It could be a simple yearly payment or a monthly indexed payment.

What normally happens on structured settlement is that the defendant purchases an annuity from an insurance company for a dollar amount that he pays upfront. Then claimant specifies, through his lawyer, on how the annuity is regularly provided to him in accordance to the terms of the structured settlement.

The best benefit one could get out of structured settlement is the assurance of having a guaranteed source of income for life. It also substantially reduces the tax that a claimant has to pay as against the lump sum settlement. Add to that the fact that you are less likely to blow off your settlement money if you opt to have structurally paid.

The only set back that you may have from structured settlement is its permanence. Once you agree to this mode of payment, you can no longer request to change it after some time. Therefore, it is important to get a good lawyer and tax advisor to help you negotiate good terms that will meet your personal and financial needs.

Defendants often offer structured settlement not to short-change claimant of his award, but to allow payment of the judgement to be settled on an instalment basis. It is flexible way for the defendant to pay a claimant’s judgement.

Structured payment may not be appropriate for everyone, but if you want a steady income that will help you get through until the end, then this is the best option for you. Just be sure to structure the settlement according to your needs and the length of time you may need it.