Structured settlements

In plain English: a structured settlement pays some or all of your injury compensation as a series of regular payments, often monthly or yearly, sometimes for life, rather than as one lump sum.

How it's set up

In the US and Canada, the defendant or their insurer usually uses part of the settlement money to buy an annuity from a life insurance company, and that annuity makes the payments to you. The schedule is agreed before you sign: a fixed monthly amount, payments that rise each year, lump sums at set dates (for college fees or a planned surgery), or a mix. Once it's set up, it generally can't be changed.

In England and Wales, the closest equivalent is a periodical payment order (PPO). Courts must consider whether future losses should be paid this way, and PPOs are most common for future care in serious injury cases. They're usually linked to an earnings-based index so the payments keep pace with care costs.

Why people choose one

• The money doesn't run out. Lifetime payments continue however long you live, which removes the risk of a lump sum being too small.
• Tax. In the US, periodic payments for physical injury are generally tax-free, including the growth built into them, if the settlement is structured correctly. In Canada, properly set up structured settlements for personal injury are also generally paid tax-free to the injured person.
• Protection from pressure. Regular income is harder for relatives, scammers or your own bad day to drain.
• Children and vulnerable adults. Courts often favour them for injured minors or people who can't manage large sums.

The downsides

You give up flexibility. If you later need a big sum, for a house adapted to a wheelchair, say, the money isn't there. Payments that don't rise with inflation lose value over decades. And you rely on the annuity provider staying solvent, so ask about its rating and any protection scheme that applies.

Next: present value · future care costs · settlement vs trial.

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