There are many reasons a person would be awarded a settlement, but in most cases, the settlement will be structured in such a way as to be paid out over a period of time. In these instances the at-fault party will purchase an annuity backed by an insurance company. There are many different payment options to suit both payers and payees, so let’s take a look at some of the more common instances below:
A lump sum payout happens when the settlement amount is low enough for the at-fault party to pay the entire amount at once relatively quickly after the case closes. However, some annuities pay out a lump sum on a designated date.
Life Contingent
A life contingent annuity requires that the person awarded the settlement remain alive in order for payments to be made. However, the most popular settlement annuities allow for a beneficiary to collect payments after the awardee has died. Life Contingent annuities are less valuable to factoring companies that may buy them, because those companies are accepting the risk of the person dying. Some life contingent annuities are also lump sum annuities, and if an awardee in that case were to die before the payout date then no benefit would ever be seen by anyone.
Period Certain
With Period Certain, regular payouts will take place over a prescribed period of time. This option will usually allow for a higher payment. There is the risk of these payments running out before an annuitant dies, however in the case that an annuitant does die, these payments can be passed to a beneficiary until the end of the period
Lifetime Payments
In this scenario, payments are made up until the annuitant's death, so payments cannot be passed to a beneficiary.
Lifetime + Period Certain
In this scenario a period is prescribed for your beneficiary. If you die before that period ends, your payments go to your beneficiary for the remainder of that prescribed period. However you shall receive payments for as long as you are alive.
Joint and Survivor
Joint and Survivor payments are popular among married couples. In this scenario if an annuitant dies, then regular payments continue to a beneficiary as long as that beneficiary is alive.
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