'Tis the Season for Structured Settlements

Structured settlements have existed since the late 1970s when Congress officially recognized their value in helping claimants secure long-term financial stability for an injured claimant. 

Initially introduced as a way to assist those who had suffered severe physical injuries, structured settlements quickly gained popularity because of the financial security they provide. Over the years, they have become a versatile tool in the claims process, offering benefits not only to claimants, but also to defendants and insurers. 

Despite their clear advantages, structured settlements remain underutilized by many claims professionals today. In this article, the authors offer quotes and information to help you understand and optimize structured settlement.  

“As we approach the holiday season, and the utilization of ‘settlement parties’ and year-end mediation days, this is an important refresher on structured settlements.” — Caryn Siebert  

Structured settlements are a way to utilize self-insured or carrier dollars more efficiently by focusing on needs, thereby making structured settlements an efficient way to resolve claims and provide financial security for the injured claimant and potential cost savings to the defendant. 

What exactly is a structured settlement?  

“Simply put, it’s a series of tax-free, periodic payments designed to meet the long-term needs of a claimant. These payments are funded through an annuity provided by a highly rated life insurance company, offering claimants a secure, predictable source of income. Structured settlements are formally recognized under IRS Code Section 104(a), which ensures that these payments remain tax-free when tied to physical injuries or sickness.” — Jarrod Zea 

The real magic of structured settlements lies in their flexibility. Unlike lump-sum settlements, which can be spent quickly or poorly managed, structured settlements offer a steady stream of guaranteed, tax-free income over time. They can be tailored to cover ongoing medical costs, lost wages, or any other financial need that might arise post-settlement. This makes them particularly effective in cases involving long-term care, such as workers’ compensation, auto accidents, medical malpractice, or catastrophic injuries. 

“One of the biggest advantages for claims professionals is that structured settlements can help facilitate negotiations, and inviting a structured settlement broker to prepare scenarios doesn’t cost a thing to either party. Whether in my former roles as chief claims officer, president, or general counsel; or in my current role in discussing ways in which to avoid surprise verdicts, I consistently encourage the utilization of structured settlements. They offer a way to bridge the gap between what the claimant/claimant attorney demands and what the defendant deems as a reasonable settlement offer. By structuring payments over time, a solution can be found that satisfies both sides. It’s a powerful tool when negotiations hit a wall, allowing both parties to compromise without sacrificing the core needs of the claimant.” — Siebert 

Beyond being a great negotiation tool, structured settlements also provide significant cost savings through the use of “rated ages.”  

“A rated age is determined by medical actuaries that assess the life expectancy of a claimant based on their medical history and injury, that can result in a claimant having a ‘rating’ that is older than their actual age because of those health conditions. This can reduce the overall cost of the annuity, benefiting the defense by lowering the overall settlement cost while still providing the claimant with necessary lifetime benefits at a reduced cost to address their needs. The current interest yields make the current environment even more favorable for those interested in structures.” — Gerardo Monroy 

For claimants who rely on public benefits like Medicaid or SSI, structured settlements can also be designed to protect those benefits. By carefully planning the payout amounts, claimants can continue receiving essential government support while benefitting from the settlement. This is especially important for the “unique investor,” (the recipient of a one-time settlement), who might not be able to manage a lump-sum payment on their own. 

“In workers’ compensation cases, Medicare Set-Asides (MSAs) can be efficiently addressed by use of the structured settlement product. Structured settlements provide a reliable way to comply with complex Medicare regulations, while ensuring that the claimant’s future Medicare covered medical needs are protected. By structuring payments for the MSA, the settlement can cover the claimant’s ongoing care without triggering penalties or jeopardizing their future Medicare benefits, and at the same time protecting the Medicare general fund.” — Zea 

Bringing a structured settlement consultant into mediation early in the process is key.  

“Claims professionals can bring in these experts at no cost to the parties, allowing for live options to be created on the spot during negotiations. Consultants add value by crafting customized solutions that address the unique needs of each case, helping claims professionals close claims faster and more efficiently.” — Monroy

In today’s claims environment, structured settlements offer a pathway to resolve claims in a way that benefits everyone involved, hence everyone wins. They provide claimants with long-term financial security, offer defendants and insurers potential cost savings, and help facilitate smoother, more efficient negotiations. For claims professionals looking to close claims with minimal friction and maximum benefit, structured settlements are a tool worth embracing. 

By understanding the history and flexibility of structured settlements under current interest rates, professionals can unlock a solution that helps all parties find common ground, protects claimants’ futures, and stretches the dollars from self-insured or carrier partners further than ever. 

About the Authors: