Many lawsuits resulting from auto accidents, motorcycle accidents and truck accidents never come to trial because the parties are able to agree upon a sum of money that that will compensate the victims and that the defendant -- or, more likely, the defendant's insurer -- is willing to pay. Most Californians, however, have never heard of a special type of settlement that is known as a structured settlement.
In concept, a structured settlement is simple. It is a series of periodic payments made to the auto accident victim -- or the victim's family if the case involves a wrongful death -- over a specified period of time. The funds come from an annuity that is purchased by the defendant's insurer. The injured person is the beneficiary of the annuity. The annuity makes monthly payments to the victim or to the victim's legal guardian.
Structured settlements are often used when the accident victim has suffered a catastrophic injury, such as permanent paralysis or the loss of a limb, which will require a lengthy period of care and entail high medical expenses. The costs of such care can be estimated as can the payments from the annuity. Hence, the size and number of payments can be "structured" to ensure that the victim will have enough money to pay for such care.
If the injuries are permanent, the annuity can be set up to make payments for the rest of the victim's life. One significant advantage of structured settlements over lump sum settlements is that the proceeds of a structured settlement cannot be squandered by the recipient. Some persons who receive large lump sum settlements are tempted to spend the entire amount without saving any money for future care; a structured settlement makes that impossible and ensures a stream of income that can be used to pay for necessary care for the victim.
Structured settlements can serve the needs of the injured person very effectively. However, no such settlement should be accepted unless it has been reviewed by the victim's lawyer or by another lawyer experienced in evaluating structured settlements.
Source: Findlaw, "Structured Settlements: Pros and Cons," accessed on May 2, 2015