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Normally when a lawsuit is settled and judgment is won by the victim, the defendant has to pay a lump sum amount to the victim. For instance, let's say a person is suffering with asbestosis and it is confirmed in the court of law that the disease is caused due to some negligence on the part of manufacturer. The person sues the manufacturer and he agrees to pay a certain amount of money to the victim in small installments over a period of time. This agreement between the victim and the defendant is called structured settlement in the legal terminology.

The installments of payment can be structured in several ways depending on the circumstances. It is basically designed to provide you some financial security while protecting you from inflation. The payments can range from simple monthly or yearly payments to complex financial arrangements consisting of an initial lump sum payment followed by monthly indexed payments or deferred payments. Sometimes these settlements also incorporate special provisions relating to insurance and medical support.

The defendants usually purchase an annuity from some insurance company by paying an upfront amount. The insurance company then takes care of regular scheduled payments as per the specifications provided by you and by your attorney in accordance with the terms of your structured settlement.

Apart from getting a guaranteed income periodically, the victim also receives several tax benefits. The amount of tax payable is substantially reduced for the annuity received. Victim can even sell his settlement to some buying company to receive lump sum cash for a discount rate.