What Is a Structured Settlement?

A structured settlement is a financial agreement designed to provide long-term security for individuals who have received a large sum of money, typically following a personal injury lawsuit or other legal settlement. Instead of receiving a lump sum, the recipient receives periodic payments over a set period. These settlements are often arranged through the purchase of an annuity, which guarantees income over time.
Structured settlements are commonly used in cases like car accidents or workplace injuries and can be tailored to meet the specific needs of the individual, such as covering ongoing medical expenses or supporting a stable lifestyle after an accident. In Texas, they offer considerable advantages, like steady income and peace of mind, but also have potential downsides to consider. This guide will explain how structured settlements work, their benefits and drawbacks, and the situations where they may be an ideal choice.
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What Is an Annuity Structured Settlement?

An annuity structured settlement is the most common form of structured settlement. In this arrangement, the injured party or recipient receives a guaranteed income stream through an annuity. The annuity is usually purchased by the defendant’s insurance company. Annuities can be customized to include payment amounts, frequency, and duration. This flexibility allows the settlement to fit the individual’s long-term needs.
In Texas, these structured settlements can be particularly beneficial in cases where the individual needs a consistent income stream for an extended period of time. Annuities often have tax advantages as well. In some cases, the payments are tax-free at the federal level. This makes annuities an attractive option for those seeking long-term financial security.
How Do Annuity Structured Settlements Work?
Structured settlements are typically negotiated as part of the settlement process in a legal case. For instance, if you are injured in a car accident, and the at-fault driver’s insurance company agrees to a settlement, you may be offered a structured settlement instead of a lump sum payment. This arrangement is set up through the purchase of an annuity.
The terms of the settlement, including the amount of the payments, how often they will be made (monthly, annually, etc.), and how long they will last, are determined by the parties involved. In some cases, structured settlements also provide for increasing the payment amount to account for inflation.
Benefits of an Annuity in Structured Settlements
There are several benefits to choosing a structured settlement through an annuity. This is particularly true when you have received a large settlement due to a personal injury case. Some of the primary benefits include:
- Guaranteed income stream: One of the main advantages of a structured settlement is that it provides a predictable, steady flow of income over time. This can help injured victims avoid the temptation to spend all of their settlement at once and ensure that they have financial security for the long term.
- Tax-free payments: Structured settlements often come with tax advantages. Many payments made through structured settlements are tax-exempt at the federal level. This can be a significant financial benefit to the recipient.
- Customized payment plans: Payments can be tailored to your needs, whether you require smaller, more frequent payments or larger sums at specific intervals. Structured settlements can also be designed to account for future needs, such as medical expenses or living costs.
- Long-term financial security: Annuities can provide income for life, offering a valuable long-term financial safety net.
In conclusion, choosing a structured settlement through an annuity offers numerous benefits, including guaranteed income, tax-free payments, customizable payment plans, and long-term financial security, making it an ideal option for those seeking stability and peace of mind after a personal injury settlement.
Drawbacks of Annuities in Structured Settlements
While structured settlements offer many benefits, they also come with some drawbacks, including:
- Lack of flexibility: One of the main downsides of structured settlements is their inflexibility. Once the structured settlement is set up, it cannot be modified, and you cannot access a lump sum of money. This can pose a problem if you have an emergency and need access to a large sum of money.
- Inflation concerns: Over time, the purchasing power of your settlement payments may decrease due to inflation. If the payment amount does not increase to keep up with inflation, you may find it harder to cover living expenses or medical bills in the future.
- Complexity: Structured settlements can be complicated to understand. You will need guidance and advice from a trusted lawyer to help you understand the terms of your structured settlement.
While structured settlements provide financial stability, they come with notable drawbacks, including limited flexibility, potential inflation risks, and complexity, which should be carefully considered before committing to this type of arrangement.
Structured Settlements Serve a Valuable Purpose in Many Cases
In Texas, structured settlements are a valuable financial tool. These agreements can help individuals who need long-term financial stability. This tool can offer the benefit of a guaranteed income stream. Plus, the structure of payments can offer tax advantages. It all depends on how you structure the payments.
However, it is important to weigh the potential drawbacks. The lack of flexibility and inflation concerns may be too risky for your situation. It is essential to carefully consider your personal financial situation, long-term goals, and future needs. It is wise to consult with an experienced personal injury lawyer before deciding whether a structured settlement is right for you.
Contact Stephens Law Firm, PLLC, for Help with Your Structured Settlement
If you are considering a structured settlement as part of your personal injury or wrongful death case, get in touch with Stephens Law Firm, PLLC. Our legal team understands how these arrangements work. We have extensive experience handling personal injury cases. We can guide you through the process and help you make the right decision for your financial future.
Contact us today for a free consultation, or call us at (817) 420 7000. Our experienced attorneys will help you explore your options and determine the best course of action for your case. Whether a structured settlement or a lump sum payment is the right choice for you, we are here to ensure you receive the best possible outcome.