When I was 5 years old my father became ill with a terminal esophageal cancer. At the time he was a practicing lawyer and at age 38 he hadn't set up much in the way of retirement or endowment to leave to his children. I have an older sister who was 12 at the time my father became ill. He had a life insurance policy that was to the sum of $300,000 and because the illness came on relatively suddenly the life insurance payout would have been a substantial monetary amount to leave to his kids.
Unfortunately his parents, my grandparents, stopped making payments to the life insurance policy. Of course once the insurance company realized my father was sick they were looking for any small technicality they could find to terminate the policy. My grandparents missed several payments to the policy which clearly qualified as 'just cause' to end the agreement. So as it stood my father was 38, dying and without anything to leave his kids. I hope this doesn't sound terrible or like I wanted him to leave anything, I was 5 at the time the illness get in and 7 when he passed, so I had no ill intent. I just want to give an example of how and why structured settlements are set up.
Towards the end of the illness the cancer had become pretty wide spread but a final attempt was made to clear it out. On that final attempt the anesthesiologist made an error causing brain damage and my father sued the hospital to re-gain medical expenses and have something to leave his kids. Rather than battle a lawsuit the insurance company decided to offer my dad a settlement. He accepted and the settlement was structured to give him some money now, and payout more money over time.
The payments were made to pay out as follows, I received $7,500 dollars on my eighteenth, nineteenth, twenty and twenty-first birthdays, follow by a lump sum payment on my 25th birthday in the amount of $15,000. My sister received the same schedule but with far less payout because she was 15 when the annuity was purchased and only had three years for interest to accrue. I was seven at the time and the annuity had eleven years to accrue, needless to say my sister was not happy about how the structured settlement was arranged.
I hope this example was helpful and now you can see a little better how structured settlements are set-up and how they pay out.
