Qualified Assignment

A qualified assignment is the mechanism, established under Section 130 of the Internal Revenue Code, by which the defendant or its insurer in a settled injury case transfers its obligation to make future periodic payments to a third-party assignment company, which then purchases an annuity to fund those payments, all without triggering taxable gain to the original obligor. The qualified assignment is what makes the modern structured settlement industry possible: it lets an insurer close its file and remove the long-term payment obligation from its books, while the assignment company — typically an affiliate of a life insurer — becomes the party legally responsible for making the periodic payments to the claimant. When a structured settlement is later factored, the factoring company is purchasing payment rights from the original payee, not from the assignment company, and the assignment company's payment obligation continues undisturbed; the factoring transaction simply redirects where those payments are sent going forward, subject to the required court order. Because the assignment company's creditworthiness is what ultimately backs the payment stream, both the original payee and any later factoring purchaser have a direct interest in the financial strength of the life insurer funding the underlying annuity, independent of the litigation that produced the settlement.

A factoring company's diligence on a structured settlement centers on the assignment company and annuity issuer's credit rating, not on any facts about the underlying injury case, because the qualified assignment structure has already converted the claimant's litigation recovery into a fixed contractual obligation of a regulated insurer.

This is also why structured settlement factoring is priced with reference to insurance-industry credit and interest rate benchmarks rather than to legal outcome data, marking a clean structural break from every other pre-settlement funding product in this glossary.