Structured Settlement

A structured settlement is a resolution mechanism in which a portion or all of a plaintiff's compensation is paid over time through a series of periodic payments, typically funded by an annuity purchased from a life insurance company, rather than as a single lump-sum payment. Structured settlements are common in cases involving serious personal injury, particularly where ongoing medical care or lost income must be funded, and in many jurisdictions they provide plaintiffs with tax advantages on investment income within the annuity. For litigation funders who have advanced capital against an eventual lump-sum recovery, a structured settlement creates a repayment timing mismatch — funders typically require repayment from the present-value lump-sum equivalent or negotiate priority repayment from the initial payment tranche. The interaction between litigation funding agreements and structured settlement annuities requires careful drafting to ensure enforceability and timing alignment.

A structured settlement creates a timing mismatch for any funder that has advanced capital against an eventual lump-sum recovery, since the funder's repayment expectation is typically anchored to a present-value equivalent rather than a stream of future annuity payments. Funding agreements financing claimants likely to receive structured settlements require explicit drafting on repayment priority from the initial payment tranche, since without it the funder can be left waiting years for full repayment through an annuity schedule it does not control.