What is a structured settlement and when does it make sense?

A structured settlement is an arrangement in which your personal injury compensation is paid out in installments over time rather than as a single lump sum. The defendant (or their insurer) funds an annuity from a life insurance company that makes tax-free periodic payments to you according to a negotiated schedule. The primary advantages are: (1) payments are completely tax-free, including investment growth — unlike a lump sum that generates taxable investment returns; (2) guaranteed income stream protects against the risk of depleting funds; (3) payments can be customized to match anticipated future needs (larger payments at specific milestones, lifetime income options). The primary disadvantages are: payments are generally not accessible early, you give up investment flexibility, and if your expenses change unexpectedly you cannot accelerate payments. Structured settlements are most advantageous for catastrophically injured claimants who need lifetime income, minors who cannot responsibly manage a large sum, and anyone who lacks investment management experience.