In a sign of the economic times, the total value of structured settlements -- in which plaintiffs in personal injury lawsuits accept periodic payments rather than one lump sum of cash -- jumped by 25 percent during the fourth quarter of 2008, compared to the previous quarter, according to statistics from Structured Financial Associates, a structured settlement brokerage firm based in Atlanta.
The fourth quarter's increase, to a total dollar value of nearly $1.8 billion, could indicate the beginning of another significant increase similar to that of previous economic downturns, such as the Internet bust, when structured settlements rose by 40 percent during eight quarters in 2000 and 2001, said Randy Dyer, a consultant in Rockville, Md., and former executive vice president of the National Structured Settlement Trade Association. Dyer spoke about the rise in structured settlements this month to members of the American Insurance Association.
"The largest growth always occurs in a time of economic turmoil," Dyer told The National Law Journal. "I see a real growth in the use of structures in 2009."
Structured settlements provide tax benefits for plaintiffs. In a $600,000 structured settlement, for example, a defendant purchases a financial vehicle, such as an annuity, to provide a plaintiff with periodic payments that are tax free, he said. Although a cash settlement also is tax free, the earnings on that income, once invested, are taxed.
With a cash settlement, a poor investment could obliterate a plaintiff's income from the lawsuit, he said. "The tendency in tougher economic times is to start thinking: 'What is the securest way I can take care of myself and my family?' " he said.
The fourth quarter's increase, to a total dollar value of nearly $1.8 billion, could indicate the beginning of another significant increase similar to that of previous economic downturns, such as the Internet bust, when structured settlements rose by 40 percent during eight quarters in 2000 and 2001, said Randy Dyer, a consultant in Rockville, Md., and former executive vice president of the National Structured Settlement Trade Association. Dyer spoke about the rise in structured settlements this month to members of the American Insurance Association.
"The largest growth always occurs in a time of economic turmoil," Dyer told The National Law Journal. "I see a real growth in the use of structures in 2009."
Structured settlements provide tax benefits for plaintiffs. In a $600,000 structured settlement, for example, a defendant purchases a financial vehicle, such as an annuity, to provide a plaintiff with periodic payments that are tax free, he said. Although a cash settlement also is tax free, the earnings on that income, once invested, are taxed.
With a cash settlement, a poor investment could obliterate a plaintiff's income from the lawsuit, he said. "The tendency in tougher economic times is to start thinking: 'What is the securest way I can take care of myself and my family?' " he said.
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