The US Government is once again going to save an American company in the financial sector. The Federal Reserve Board has declared an $85 billion dollar loan to rescue AIG (American International Group), giving the US Government a majority stake in the company, with almost 80% of the shares.
AIG is presently the country's largest insurance company with over $1 trillion dollars in assets and nearly 80 million clients and customers worldwide. With a sector of AIG being a leader in the structured settlements annuities market, the question looming over the structured settlement sector is what effect will this bailout have?
A structured settlement is often set up as a compensation or payout tool to victims usually from an injury claim. These settlements are useful as a tax shelter, as opposed to a lump sum payment of which the compensated would have to pay taxes on the full amount. They are also useful in cases where the compensated cannot handle large amounts of financial responsibility at once, or the compensated are children or minors in need of a guarantee of money in the future. AIG's life insurance department sector is a major guarantor of settlements.
With the bailout of AIG by the US Government imminent, one may wonder about those structured settlements guaranteed by the settlements sector of AIG's insurance business. It is important to note that AIG may not simply remove money or assets from its life insurance sector; it may only remove profits. The insurance division must also have money set aside for each structured settlement it is guaranteeing. The state of Texas (which oversees the life insurance department that guarantees these settlements) supervises and monitors each of these reserve accounts.
Presently, the future of structured settlements and settlement payments will not be affected by the AIG bailout by the feds.
What is a Structured Settlement?
A structured settlement is often set up as a compensation or payout tool to victims usually from an injury claim. These settlements are useful as a tax shelter, as opposed to a lump sum payment of which the compensated would have to pay taxes on the full amount. They are also useful in cases where the compensated cannot handle large amounts of financial responsibility at once, or the compensated are children or minors in need of a guarantee of money in the future.
As part of the structured settlement agreement, the company and the compensated victim agree on a payment schedule include flexibility, payment intervals, and amounts. With structured settlements, as they are used as a tool to secure the financial future, it is very important to have the settlement be backed by an insurance or annuity company. Presently, the life insurance department of AIG is one of the biggest structured settlement insurers in the US.
Many state and federals laws regulate and govern the setup of these settlements, so it important to work with proper professional counsel and advice. There are many steps and timelines that need to be followed carefully.
What are Advantages to Structured Settlements?
Structured settlements are often employed in many cases of compensation settlements. They offer a few benefits which make them a popular pick. The biggest advantage is definitely that the regular payments are tax free (of both state and federal tax liabilities). This is contrasted with a lump sum cash payment, from which the compensated must by both state and federal taxes on the lump sum, as well as on any interest that sum accrues in the future.
If the compensated is unable to handle the financial responsibilities of getting a large lump sum cash payment at once, the regular interval payments form a structured settlements can also actually help secure the compensated's financial future. With smaller amounts of money made available to individuals at regular intervals, it becomes much easier to manage the money and make individuals less attractive to con artists or scammer who like to go after large sums of money.
As it is inherent in the regular schedule and interval of payments, Structured settlements are inherently a useful tool for taking care of an individuals needs for after retirement. Also, often times structured settlements can be made outside of court, as to save the court costs of both parties. Lawyer fees and charges for a structured settlement are also usually lower than those for an in-court decision, award, or settlement.
Lastly, Structured settlements are very flexible. As long as both sides agree on the payment amounts and schedule, they can really be set according to however they are wanted. The intervals for regular payments do not have to stay the same, nor do the payment amounts. These make structured settlements a useful and often utilized financial tool.
is a structured settlements information site dedicated to providing relevant structured settlement information and maintaining a sponsored directory of trusted and reputable structured settlement companies and specialty factoring firms. We can be found at http://settlementinfos.com
Great article, Chuck. I had often wondered why anyone would prefer a structured settlement vs a lump sum payout. Now I understand. I see the advantages. Thanks for sharing.
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