Although annuities are structured settlements, they are not awarded by a court which structured settlements usually are, they are usually associated with things like lottery wins. A structured annuity is a regular payment which is made to a lottery winner instead of them being paid one huge sum all at once and usually these payments will continue to be paid until the winner dies. A structured settlement is what a court awards for damages in cases where there have been illnesses, injuries or deaths where a certain person or persons can be held accountable for wrong doing and causing the illness, injury or death. Both annuities and structured settlements are therefore regular payments that are made to people for a set number of years or until their death. It isn’t everybody that would prefer a structured payment over a lump sum and in today’s modern world of finance they can opt to sell a certain number of years of their payments for a lump sum. These settlement payments are bought by companies that specialize in such transactions but they do not always keep the payments themselves as they often offer them to their investors to allow them to receive regular incomes from at least some of their investment money.
There are of course advantages to receiving a structured payment as it means you cannot spend all the money hastily all at once, you will be assured a regular extra income, perhaps in many cases for many years. However, there are those people that believe that if they were paid all the money at once, they could make their own investments and believe that their wise choices could mean that they would receive more than the structured settlements would add up to. Of course there are those people that already have large debts and so would appreciate one large sum in order to be able to clear their debts, perhaps pay off a mortgage or pay for the new car that they had just bought. In reality though, if a person is not in huge debt, a regular extra income is probably the best way of being paid as otherwise a hefty tax bill may have to be paid on any lump sum received. As a lump sum payment would be received all in the same tax year, all of it would be taken into consideration and perhaps as much as 45% of it would therefore have to be paid in taxes whereas if a structured settlement was paid, only the amounts received each year would have to be taken into consideration for tax purposes. Even with structured payments tax may still have to be paid of course, especially if the recipient had other incomes as well but, in that case the percentage taken by the taxman may be smaller.
If a company buys an annuity from a lottery winner, they would usually only buy a set number of years but even then if the winner were to die prior to the completion of those years, payments would stop and so insurance is taken out by the buyer.