A structured settlement annuity is a powerful financial tool designed to provide long-term, tax-free income to individuals who receive compensation from personal injury lawsuits, wrongful death claims, or other legal settlements. Instead of receiving a lump sum, the settlement is distributed through periodic payments over time, ensuring financial security.
In this article, you’ll learn everything you need to know about structured settlement annuities in 2025 — how they work, their pros and cons, legal aspects, tax implications, and the best companies to consider.
What Is a Structured Settlement?
A structured settlement is a financial or insurance arrangement where a claimant agrees to resolve a personal injury claim by receiving part or all of a settlement in periodic payments instead of a one-time lump sum.
These payments are funded by an annuity purchased from a reputable insurance company, providing steady income over a specified period — monthly, quarterly, annually, or even lifetime.
Common Types of Cases:
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Personal injury claims
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Medical malpractice
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Wrongful death lawsuits
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Workers’ compensation
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Product liability cases
How a Structured Settlement Annuity Works
Step-by-Step Breakdown:
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Settlement Agreement
Parties in a lawsuit agree on compensation to the injured party. -
Annuity Purchase
A structured settlement annuity is bought from a life insurance company. -
Payment Schedule
Payments are set to begin at a predetermined time and continue based on a fixed schedule. -
Tax Benefits
Payments are generally income-tax free under U.S. tax law (IRC Section 104(a)(2)).
Advantages of Structured Settlement Annuities
1. Guaranteed Income
Provides predictable, long-term financial support — ideal for covering medical costs, daily living expenses, or education.
2. Tax-Free Payments
In most cases, structured settlement payouts are completely exempt from federal and state income tax.
3. Customizable Terms
The payment schedule can be customized to fit your lifestyle — immediate or deferred, lump sums at intervals, or life-contingent payments.
4. Protection from Waste
Avoids the risk of quickly spending a large lump sum, especially for minors or those unfamiliar with money management.
5. No Management Fees
Unlike investment accounts, structured settlements do not come with brokerage or portfolio management fees.
Disadvantages of Structured Settlement Annuities
1. Lack of Liquidity
Once the annuity contract is in place, it’s generally not flexible. You can’t access additional funds without selling future payments.
2. Inflation Risk
Payments are fixed and may lose value over time unless inflation adjustments are included.
3. Limited Access to Lump Sum
Immediate large expenses (like home purchase, surgery, or business investment) might not be easily funded unless specially planned.
Can You Sell a Structured Settlement?
Yes, you can sell future payments to a third-party company for an immediate lump sum — but this requires court approval to ensure the transaction is in your best interest.
Consider Before Selling:
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The discounted value will be much lower than total future payments.
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Legal and financial advice is highly recommended.
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The process can take weeks due to court involvement.
Best Structured Settlement Companies in 2025
Here are the top-rated annuity providers and brokers:
1. Pacific Life
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A.M. Best Rating: A+
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Offers flexible annuity terms
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Strong history in personal injury structured settlements
2. MetLife
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Trusted brand with stable financial outlook
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Offers inflation-adjusted payment options
3. Prudential
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Provides life-contingent and fixed-term annuities
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Excellent service and nationwide availability
4. Berkshire Hathaway Life Insurance
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Warren Buffett–backed reliability
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Specializes in large and long-term structured settlements
5. Liberty Life Assurance
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Known for customer service and claims management
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Offers highly customizable payout options
Legal Aspects to Consider
Court Approval
For minors or incapacitated persons, the court must approve the structured settlement to ensure long-term protection.
Structured Settlement Protection Act
This U.S. law requires judicial oversight when selling a structured settlement, safeguarding recipients from exploitation.
Tax Implications
Tax-Free Benefits:
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Payments related to physical injury or sickness under a lawsuit are generally tax-free.
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Spousal and wrongful death settlements are also typically exempt.
Taxable Exceptions:
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Emotional distress settlements (not linked to physical injury)
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Punitive damages
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Attorney’s fees (unless included in the structured amount)
Who Should Choose a Structured Settlement?
Structured settlements are ideal for:
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Individuals with lifelong medical needs
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Minors who need money over time
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Individuals seeking financial stability
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Families of deceased victims (wrongful death)
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Victims of major accidents or disabilities
Frequently Asked Questions (FAQ)
Q1. Can I change my payment schedule later?
No. Once the terms are finalized and the annuity is purchased, changes are extremely limited and may require court intervention.
Q2. Are structured settlement companies regulated?
Yes. Insurance companies providing annuities are regulated by state insurance departments.
Q3. How can I avoid scams?
Choose only licensed, A-rated companies. Avoid unsolicited offers promising quick cash.
Q4. Do I need a lawyer?
Yes. A structured settlement lawyer can help negotiate terms, review tax implications, and ensure your long-term interests are protected.
Tips Before Signing a Structured Settlement Agreement
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Consult a certified financial advisor and lawyer
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Forecast your long-term needs realistically
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Understand inflation impact and future cost of living
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Ensure medical costs and education are covered
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Ask for a clear breakdown of payment schedule and terms
Final Thoughts
A structured settlement annuity can be a smart and secure way to manage financial compensation from legal claims. It ensures stability, long-term income, and peace of mind. Whether you’re receiving funds for a personal injury, wrongful death, or long-term care, structured settlements are designed to support you over time without the risks associated with lump-sum payments or investments.
Always consult professionals, understand the legal structure, and choose reputable providers when setting up your settlement.