With our lives moving at the speed of light, contingencies are waiting to happen at every corner. Be it unforeseen medical costs, fortunate lottery wins, fulfilling a worker’s compensation claim or any other such legal settlement, you always have to be insured against tough times. However, with dozens of types of insurances, claims and funds cropping up every single day, one might get confused as to which one to purchase.
What are Structured Settlements?
A structured settlement is a sort of legally-binding arrangement that insures the owner of the settlement against any personal injuries or other such claims. However, instead of receiving a lump sum amount at one go, the insurer gets to resolve the claim by receiving regular payments, the amount and time being fixed prior to acquiring ownership of the settlement. A number of common law nations such as the likes of Canada, the United States of America, England and Australia have adopted the practice of structured settlements as a part of their statutory tort laws. Structured settlements are often considered to be asset-backed security measures as these settlements may also include income tax and spendthrift necessities as well as extra benefits. The regular payments are frequently created through the acquiring of one or more annuities, which assure the payments in the future.
Types of Structured Settlements
Appropriate federal laws have been put into action to prevent claimants from immediately utilizing the money obtained from any form of legal settlement. In cases involving personal injury, a plaintiff obtains a considerable jury reward or settles a claim for a considerable amount and the money is organized into monthly or annual payments to help the recipient cover medical expenses. Families of wrongful death victims can obtain their claims through structured settlements. These settlements also cater to worker’s compensation claims to rightfully cover their expenses if they were injured while on the job. These compensations help the workers while they recover from whatever unfortunate injury they have suffered from.
What are Variable Annuities?
A variable annuity, like a usual annuity, is a contractual agreement with an insurance company. The money that is being placed with the insurance company will be invested in ways prescribed by you. The investments are listed as sub-accounts inside a variable annuity on a pre-selected list of funds. These investment options may range from bold stock funds to conservative bonds. However, since the investment options are in your hands, the return you receive will vary depending on the performance of the investment. Hence, the name “variable” annuity. A fixed annuity, on the other hand, offers you a fixed regular sum as the investment options are decided upon by the insurance company, instead of you. Variable annuity schemes come armed with death benefit riders, at a certain amount. They offer the comforting guarantee to the purchaser’s heirs as well as living benefit riders as to how much income can be withdrawn from the policy in the future.
Comparison between Structured Settlements and Variable Annuities
There are several points of comparison between structured settlements and variable annuities. The first one is the type of insurance products that supports these payments. A structured settlement is supported by a fixed annuity contract obtained from a life insurance agency. A variable annuity, on the other hand, is supported by a variable annuity contract, the assets being invested in variable or fixed investments to raise the capital. The next concern is that whether either of these will provide a secure lifetime income. Structured settlements can, as the payments and distribution routine is decided on in the very beginning itself. Thus, there is no chance of you outliving the income flow. Variable annuities, however, do not provide a lifelong income until and unless they are annuitized. Moreover, a Cost of Living Adjustment (COLA) feature prevents inflation from having a negative impact on structured settlements. Variable annuities are affected by inflation as their returns depend on investment performances. Lastly, the amount that is received via a structured settlement is exempted from all tax obligations, provided the income has been obtained on grounds of physical harm or some other such legible ground. On the other hand, liquidation of income obtained from variable annuities is subject to income taxes and a certain percentage of federal penalties, if obtained prior to a certain age.
In conclusion, structured settlements benefit every claimant, irrespective of their financial or social standing. They protect the purchasers against sudden and unfortunate emergencies. Unlike variable annuities, these settlements have no hidden costs and provide you with the exact amount you had been promised previously and that too at the scheduled time. Besides, it is free from all sorts of tax duties and is not at all influenced by negative market trends, thus guaranteeing a secure amount of money for your present or future emergencies. Structured settlements are thus, essentially a form of income with added benefits that should be acquired by every one for a secured life.