Is a Structured Settlement Annuity an Insurance Product ?

For many people, a gray line exists between settlements and insurance policies so when questions comes up about a structured settlement annuity being an insurance product, it is no surprise.  If you look at the legal definition, according to the Internal Revenue Code a structured settlement annuity is an arrangement for both financial and insurance sectors.  With this type of settlement you would be the recipient of scheduled payments as a result of settling with a person or company that had caused you permanent injury due to neglect or intentional misconduct.

For many people, a gray line exists between settlements and insurance policies so when questions comes up about a structured settlement annuity being an insurance product, it is no surprise.  If you look at the legal definition, according to the Internal Revenue Code a structured settlement annuity is an arrangement for both financial and insurance sectors.  With this type of settlement you would be the recipient of scheduled payments as a result of settling with a person or company that had caused you permanent injury due to neglect or intentional misconduct.

If you had filed a lawsuit from a situation such as this, either the case would move forward and be tried before a judge or jury or you could settle out of court.  Most people think choosing a structured settlement results in receiving less money but this is not always the case.  In other words, accepting payments of a structured settlement annuity is the result of a personal injury tort claim or as a means of compromising to avoid a lawsuit dragging out in court.

Although Canada was first to use structured settlement annuities over lump sum payments, this type of arrangement has become very popular in the United States.  The primary reason for the popularity comes from rulings established by the Internal Revenue Service whereby both local and federal taxes would be waived.  In addition to North America, other countries use structured settlements to include England and Australia.

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Now, specific to a structured settlement annuity being an insurance product, yes but for reasons you may not have considered.  For a standard insurance policy, whether for the home, car, or life, the purpose is to provide you with security, peace of mind, and protection.  The same is true for structured settlement annuities in that they are designed to protect and even enhance the quality of your life.  You could look at this type of settlement similar to various retirement saving plans but in truth, annuities offer far more benefits.

One benefit of choosing a structured settlement annuity as an insurance product is the level of flexibility you would not enjoy with other insurance products.  You have control over the number of years payments are received, which would range from five years to life.  You also have various options specific to lump sum payments throughout the settlement period.  As an example, if preferred you could set up scheduled payments but then ever few years receive one large lump sum.

Structured settlement annuities are also available in different types.  For instance, a fixed annuity plant means that an insurance company provides a guarantee on the fixed interest rate for the time during which money is being accumulated.  With this option, you would receive scheduled payments over the established timeframe.  However, you could also name a beneficiary who would receive the payments upon your passing.

The second type of structured settlement annuities as an insurance produce is variable. For this, payments would be invested in various plans.  You would have the opportunity to choose the type of investment although the most common is a mutual aid.  Keep in mind that the amount of interest earned for this option, as well as the scheduled payment would vary based on performance of the mutual fund chosen.  For this second option there is some risk so when looking at both possibilities of a structured settlement annuity as an insurance product, you would need to determine the level of risk willing to take.