A
structured settlement is a financial or
insurance arrangement whereby a claimant agrees to resolve a personal injury tort claim by receiving periodic payments on an agreed schedule rather than as a lump sum.
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). A structured settlement can be implemented 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 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 certain requirements were met then claimants could have
federal income tax waived. Higher interest rates result in lower present values, hence annuity premiums, for deferred payments versus a lump sum.
