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admin wrote this blog titled "Structured settlement - Benefits, Legal aspects"

A structured settlement is a financial or insurance arrangement, defined by Internal Revenue Code as periodic payments. Claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada after a settlement for children affected by Thalidomide.Structured settlements are widely used in product liability or injury cases (such as the birth defects from Thalidomide). Benefits of a structured settlement can be to reduce legal and other costs by avoiding trial. Structured settlement cases became more popular in the United States during the 1970s as an alternative to lump sum settlements.The increased popularity was also due to several rulings by the IRS, an increase in personal injury awards, and higher interest rates. The IRS rulings changed policies such that if the requirements were met then claimants could have federal income tax waived.Higher interest rates resulted in lower present values, hence annuity premiums, for deferred payments versus a lump sum.
Structured settlements have become part of the statutory tort law of several common law countries including Australia, Canada, England and the United States. Structured settlements may include income tax and spendthrift requirements as well as benefits and are considered to be an asset-backed security.Often the periodic payment will be created through the purchase of one or more annuities, which guarantee the future payments.Structured settlement payments are sometimes called periodic payments and when incorporated into a trial judgment is called a “periodic payment judgment.
The typical structured settlement arises and is structured as follows: An injured party (the claimant) settles a tort suit with the defendant (or its insurance carrier) pursuant to a settlement agreement that provides that, in exchange for the claimant's securing the dismissal of the lawsuit, the defendant (or, more commonly, its insurer) agrees to make a series of periodic payments over time.The defendant, or the property/casualty insurance company, thus finds itself with a long-term payment obligation to the claimant. To fund this obligation, the property/casualty insurer generally takes one of two typical approaches: It either purchases an annuity from a life insurance company (an arrangement called a "buy and hold" case) or it assigns (or, more properly, delegates) its periodic payment obligation to a third party ("assigned case") which in turn purchases a "qualified funding asset" to finance the assigned periodic payment obligation. Pursuant to IRC 130(d) a "qualified funding asset" may be an annuity or an obligation of the United States government.
In an unassigned case, the defendant or property/casualty insurer retains the periodic payment obligation and funds it by purchasing an annuity from a life insurance company, thereby offsetting its obligation with a matching asset. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The defendant or property/casualty company owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are life-contingent, then the claimant is named as the annuitant or measuring life under the annuity. In some instances the purchasing company may purchase a life insurance policy as a hedge in case of death in a settlement transfer.
In an assigned case, the defendant or property/casualty company does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the defendant or property/casualty insurer transfers the obligation, through a legal device called a qualified assignment, to a third party.


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