Structured settlement first came into light during the 1970s. It was conceptualized to protect claimant from the possibility of squandering the money typical from lump sum settlements. It is basically an insurance or financial arrangement to pay off the claimant on a scheduled basis.

Structured settlement is usually reached when both the claimant and the defendant agree to settle the dispute out of court. Instalment payments are structured to suit the claimant’s need. For example, portion of the monthly payment may be allocated to the claimant’s medical needs.

If both parties decides not to prolong the court proceedings, the defendant will have to buy an annuity from an insurance company equal to the up front dollar amount of the settlement. The insurance company will then have to provide scheduled payments to the claimant, providing a source of income.

Some structured settlement can last a claimant’s lifetime, thus securing his future. And there are those that will only last for a certain period of time, just enough to help the claimant through his rehabilitation. Although the payments are considered as income, they are not included in computing the gross annual income of the claimant, making it tax free.

Once a claimant agrees on a structured settlement, it is permanent. Therefore, he can not change his mind and demand lump sum payment of the remaining settlement. Before signing your structured settlement, be sure that it is flexible enough to protect you from inflation and other unforeseen circumstances that may cause you financial stress. Remember that this may be your only source of income, and in a few years time the instalment amount that you’re getting may not be enough to cover all your daily needs.

Should a claimant decide that there’s an immediate need for money in a short term, then he can opt to sell his annuity with the help of a lawyer and a good broker. Structured settlements are saleable to those people who have the ability to produce cash up front in exchange of the benefits associated with the settlement.

Understanding structured settlement is important to ensure you and your family’s future. Because in the end, it may be your only ticket to financial stability despite your medical condition.