Personal Injury · Haute Lawyer Network
What Is a Structured Settlement?
Last reviewed: June 2026
A structured settlement is a financial arrangement in which personal injury compensation is paid to the plaintiff in periodic installments over time rather than in a single lump sum. Structured settlements are typically funded by an annuity purchased by the defendant or their insurer from a life insurance company. The annuity generates a series of tax-free payments over the agreed schedule — monthly, annually, or in a combination of periodic and lump sum payments.
The primary advantage of a structured settlement is tax treatment — personal injury compensation is generally tax-free, and the investment earnings on a structured settlement annuity are also tax-free, unlike the earnings that would accrue if a lump sum were invested separately. This can produce significantly more total value than a lump sum invested taxably.
Structured settlements are most appropriate for cases involving serious, permanent injuries — catastrophic injuries requiring lifetime medical care, cases involving minors who need long-term financial security, and situations where the plaintiff has limited financial sophistication.
Frequently Asked Questions
Can I sell my structured settlement payments?
Yes, through a "factoring" transaction — a company purchases your right to future payments for a lump sum. These transactions require court approval and typically involve selling your payments at a significant discount.
Are structured settlement payments tax-free?
Yes. Under IRC § 104(a)(2), periodic payments from a personal injury structured settlement are excluded from income — including the investment growth component. This makes structured settlements substantially more valuable than equivalent amounts invested taxably.
Can I change my mind after agreeing to a structured settlement?
Once the structured settlement agreement is signed and the annuity purchased, the payment schedule is generally fixed. Ensure the schedule meets your long-term needs before agreeing.
What happens to structured settlement payments if I die?
Depends on the terms. Structured settlements can be structured to guarantee payments for a specified period regardless of death, provide for a lump sum to beneficiaries if death occurs early, or terminate at death. Life-contingent payments end at death.
Should I take a lump sum or structured settlement?
Depends on your financial sophistication, health status, income needs, and tax situation. For catastrophic injuries with ongoing medical needs, a structured settlement providing guaranteed lifetime income for care expenses may be ideal. For healthier plaintiffs with financial sophistication, a lump sum may provide more flexibility.
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