Whether from settling a personal injury lawsuit or resolving an ugly contract dispute, collecting a big lump sum settlement can feel like winning the lottery. But what if you had the option to take that money as a steady, guaranteed income stream over decades instead? 

That’s the fundamental premise behind structured settlements. Rather than a one-and-done cash payout, recipients have their settlement converted into an annuity that provides a series of recurring future payments funded by the defendant’s purchasing of U.S. treasury-backed annuity products. 

On its face, this proposition of guaranteed tax-free income sounds awesome, right? Your financial future is locked and loaded through a series of payments tailored exactly to your needs.  

But before you get too excited about riding off into the annuity sunset, taking a closer look at whether structured settlements are genuinely a wise and reliable vehicle for your settlement dollars is warranted. After all, we’re talking about funds that need to be rock-solid and last for potentially decades. 

This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions. 

Who issues structured settlements? 

The overarching safety and reliability of structured settlement payments rests largely on the entities behind them – the big life insurance companies tasked with fulfilling and backing those annuity obligations. 

When defendants like corporations, municipalities or individuals opt to pay out a settlement through periodic payments rather than a lump sum, they’re purchasing a tailored annuity policy from a major life insurance carrier. 

By U.S. federal regulations, only the highest-rated and most financially fortified life insurance companies are even legally permitted to issue these structured settlement annuities underwritten by their general accounts. We’re talking behemoths like: 

• MetLife 
• Prudential Financial 
• Pacific Life 
• New York Life 
• Berkshire Hathaway Life 

These carriers are powerhouse brands with billions in reserves, making their highly-regulated structured settlement annuities among the safest, most secure financial products available. Many pay ratings agencies like A.M. Best consistently award these policies top safety scores. 

How are structured settlements protected? 

Beyond the might of the underlying life insurer, structured settlement payments further benefit from iron-clad layers of protection: 

• Funding reassurance: Per federal laws, insurance companies issuing these annuities must safely replicate and match premium funding to cover future payout obligations. 
• Policies pay regardless: No matter what potentially happens to the defendant who purchased the annuity, plaintiffs continue receiving payments directly from the insurance company per contract terms. 
• State guaranty backups: If the absolute nightmare scenario played out and an insurance company backing structured payments defaulted, every state has a guaranty association backstopping obligations up to statutory limits. 

Of course, it’s prudent for high-dollar recipients to spread annuity obligations across multiple highly-rated insurance carriers rather than keeping all eggs in a single basket. 

But overall, modern structured settlement payments get consistently high reliability marks from experts, courts, and rating agencies alike. The combination of regulations, insurance reserves, and supplemental safeguards render them one of the lowest-risk financial instruments available. 

What are the potential risks? 

While aggressive fraud or misrepresentation of structured settlements is extremely rare, there are a few drawbacks and risks that prospective recipients should carefully consider: 

• Less liquidity/flexibility: Selling or transferring future structured payments for a lump sum requires navigating state laws and approval processes, limiting access if cash is required immediately.
• Payout dilemmas: Annuities can be structured for single life only, ceasing payments upon death unless contractually designed to accommodate beneficiaries. 
• Interest rate climate: With funds often guaranteed for decades, payouts may not generously increase with market interest rates rising over time like with market investments.