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What Is the Difference between a Structured Settlement and an Annuity?

It’s tempting to lump both annuities and structured settlements into the same category. After all, they have quite a few matches, including regular payments over a specified period of time. However, they’re actually very different and the way federal and state laws handle these two financial products is also very different. What is the difference between an annuity and a structured settlement? Let’s take a faster look.

A Look at Structured Settlements

Structured settlements are exactly what they sound like. These are mostly the result of a lawsuit involving personal injury or liability, and represent an award in the plaintiff’s favor. The defendant has been found guilty or has chosen to settle rather than go to trial. The settlement amount has been changed from a lump sum into a series of payments over time. These are called deferred payments.

A Look at Annuities

The difference between an annuity and a structured settlement is that annuities are usually financial tools available through insurance companies or investment firms. Lottery winnings often fall into this category too, if the individual opted for the annuity select rather than the lump sum payment. An annuity is an investment on which the investor earns a return in addition to the original investment amount, and can have various beneficiaries. Annuities come in a wide range of types, as well.

What to Know

As you can see, the difference between an annuity and a structured settlement is really pretty significant when you actually dig down into the topic. How does this affect you, the holder of the annuity or structured settlement?

A great deal of how you are affected will be determined by where you live and what state laws apply to the sale of your product. In most cases, states do allow the sale of structured settlements, but annuities are sometimes a different matter. The law can be very complex surrounding the sale of these types of financial tools and you’ll need an expert to help you sail across these murky waters.

Maybe the best advice for anyone considering selling an annuity or structured settlement is to work with a decent broker who understands the law. The broker should be a member of the BBB, and should have a long history of providing robust solutions for clients and helping them get the best deal for their settlement or annuity.