Structured Settlement is the special form of compensation amount payable for any form of damage done to a party (like injury by medical negligence) by another party against whom the victim files a lawsuit. It usually consists of one part of the amount paid to the claimant initially and the other part of the larger amount which is paid out to that party through installments instead of paying the whole compensation as a lump sum. These installments can be variable depending on the agreement between the two parties like – a smaller annual amount for next 20 years or a larger amount per year for next 10 years etc. The amount for initial few years could vary from the installment amount for years thereafter to the extent that the claimant can also choose to have no payments for few initial years and fixed annual installments thereafter to fund retirement needs. Whatever be the arrangement, usually a typical structured settlement has the following components:
Components a Typical Structured Settlement
A structured settlement can be designed very flexibly, according to the needs of the claimant but still a typical structured settlement contract has the following basic components, of which all must satisfy certain conditions to fall under the tax-free bracket of the law. The components of a structured settlement annuity can include:
- structured settlement agreement
- application for the annuity
- The court order (only if claimant is a minor)
- The annuity policy
On the whole, the components can be classified as Compulsory component and the Optional Components:
Compulsory Component – The Periodic Payment Settlement Act of 1982, ensures that the claimant receives a guaranteed income stream over the period of settlement agreed upon by the parties. Any such agreement is entered into in the presence of the court of law 
and has thus, all the legal backing required. Thus, each structured settlement must have at least one or more personal injury annuities which together provide the claimant with his compensation in pre-structured installments. These annuities are usually provided by the life insurance companies.
Optional Components – These are the components that a person can flexibly design to suit his requirements. First of these is the
- Immediate Cash Component that a person may wish to include to get some lump-sum in the beginning to address his immediate financial needs. For someone who has never handled too large an amount at once, chances are that the person might lose that lump-sum money due to his poor financial choices. The claimant can avoid this risk by opting for a small immediate cash component rather than taking the whole large lump-sum amount.
- Other Personal Injury Annuities include the amount of claims to be received by the claimant in planned and structured installments. Besides, the claimant may choose to receive a series of lump sum at periodic intervals.
- Indexed Personal Injury Lump-sum is a provision wherein the claimant has the option of allocating a fixed sum of money after some fixed number of years for matters such as replacement of medical equipment or providing him a new wheelchair after every four years etc. A structured settlement annuity offers the additional option to the claimants to receive the money as long as he lives and with an in-built inflation factor to guard him against rising prices with absolutely no additional costs or charges.
Thus with various flexible provisions, the structured settlement annuities can serve the financial needs of the claimant by providing a guaranteed steam of payments much better that a large lump-sum can.