Structured Settlement Glossary

A financial product that pays out a fixed stream of money at regular intervals (monthly, quarterly, or annually) over a set period or for life. Structured settlement payments are funded by annuity contracts purchased from life insurance companies. The insurance company makes each payment to you according to the schedule set in your original settlement agreement.

The insurance company that holds the annuity contract and makes the periodic payments to the structured settlement recipient. Common issuers include MetLife, Prudential, Pacific Life, and John Hancock. The creditworthiness of the annuity issuer affects the discount rate a buyer will apply — payments from highly rated insurers command lower discount rates (better for you).

The legal standard courts apply when evaluating a structured settlement transfer. Before approving a sale, a judge must find that the transfer is in the seller's "best interest" considering their financial situation, dependents, and alternatives available. This standard is designed to prevent people from selling payments impulsively or under financial pressure without fully understanding the trade-offs.

The required judicial sign-off before any structured settlement transfer can take effect. Under each state's Structured Settlement Protection Act, a judge must review and approve the sale at a formal court hearing. The buyer's attorney typically files the petition and handles all court paperwork on your behalf at no cost to you.

The annual interest rate a structured settlement buyer applies when calculating the present value of your future payments. It represents the buyer's profit margin and cost of capital. The higher the discount rate, the lower the lump sum you receive. Discount rates in the structured settlement market typically range from 9% to 18% annually. Always compare rates from multiple buyers — a 3% difference on a large settlement can mean tens of thousands of dollars.

A required document the buyer must provide before you sign a purchase agreement, disclosing the exact discount rate, the gross amount you'll receive, the total amount you're giving up, and the effective annual return. Most state SSPAs require this document be delivered 3–10 days before the contract is signed, giving you time to compare offers and seek advice.

Required to be disclosed in most states, the EAR expresses the discount rate as the buyer's actual annual rate of return on their investment in your payments. It helps you see, from the buyer's perspective, how profitable your deal is for them. A higher EAR means more profit for the buyer — and less money for you.

Another name for a structured settlement buyer — a company that purchases future payment rights at a discount in exchange for immediate cash. The term comes from the broader financial practice of "factoring" receivables (buying future cash flows at a discount). In the structured settlement industry, factoring companies are regulated by state SSPAs and must obtain court approval for every transfer.

The total series of payments you are scheduled to receive under your structured settlement. When you sell to a buyer, you are transferring some or all of this future payment stream in exchange for a lump sum today.

Advice provided by a qualified adviser (such as an attorney, CPA, or financial advisor) who is independent of the buyer, about the proposed transaction. Some states require sellers to obtain IPA before the sale can be approved; in others, the requirement can be waived in writing. Even when not required, getting IPA is always a good idea before agreeing to sell.

A single one-time payment, as opposed to installment payments spread over time. When you sell your structured settlement to a buyer, you receive a lump sum equal to the present value of your future payments at the buyer's discount rate. The lump sum is always less than the total of all future payments you would have received.

A structured settlement sale in which you sell only a portion of your future payment rights, retaining the rest. You might sell the next 60 payments, a specific percentage of each payment, or payments within a defined date range. Partial transfers require the same court approval as full transfers and are supported by all major buyers. They're popular for people who need immediate cash but want to preserve ongoing income.

The current worth of a future sum of money, discounted at a specific interest rate. Present value is the mathematical foundation of every structured settlement buyout. The formula is: PV = PMT × [(1 − (1 + r)⁻ⁿ) / r], where PMT = monthly payment, r = monthly discount rate, n = number of payments. Our free calculator applies this formula automatically.

The contract between you and the structured settlement buyer that specifies the exact payments being transferred, the lump sum being paid, the discount rate, fees (if any), and all other terms. You must review this agreement carefully before signing — it is legally binding once a court approves it. You typically have a waiting period (3–10 days depending on state) after signing to change your mind.

The mechanism under IRC §130 through which a casualty insurer assigns its obligation to make periodic payments to a third party (a "qualified assignee" — usually an insurance company that then purchases an annuity). Qualified assignments are what create the tax-exempt status of structured settlement payments under IRC §104. Understanding this is important for tax planning when selling.

A legally mandated window after you sign a purchase agreement during which you can cancel the deal without penalty. Most states set this at 3 days. It gives sellers a cooling-off period to reconsider, seek additional advice, or compare competing offers. If you change your mind during rescission, notify the buyer in writing immediately.

A company that purchases future structured settlement payment rights from recipients in exchange for an upfront lump sum. Also called a factoring company, purchasing company, or transferee. Well-known buyers include J.G. Wentworth, Peachtree Financial Solutions, CBC Settlement Funding, Fairfield Funding, and Stone Street Capital. They earn a return by paying you less than the total present value of your payments.

A negotiated financial or insurance arrangement in which a claimant accepts payment in periodic installments rather than a single lump sum. Structured settlements most commonly arise from personal injury lawsuits, workers' compensation claims, and wrongful death suits. Payments are funded by an annuity and are generally tax-exempt under federal law when they arise from physical injury claims.

State laws — passed in all 50 states and D.C. — that regulate the sale of structured settlement payment rights. Modeled on the federal Structured Settlement Protection Act (26 U.S.C. § 5891, enacted 2002), state SSPAs require court approval, mandate disclosure of the discount rate and lump sum amount, and enforce waiting periods. They were created to protect settlement recipients from predatory buyers. See our State Guides for your state's specific SSPA details.

See Purchase Agreement. Some states use the term "transfer agreement" in their SSPA statutes rather than "purchase agreement." They refer to the same document.

The buyer — the party receiving the payment rights in a structured settlement transfer. The legal term used in most state SSPA statutes for the company purchasing your payments.

You — the person selling your structured settlement payment rights to the buyer. The legal term used in state SSPA statutes for the person giving up future payments in exchange for a lump sum.

The simple arithmetic total of all remaining structured settlement payments, without applying any discount rate. For example, 120 payments of $2,000 have an undiscounted face value of $240,000. The lump sum a buyer offers will always be significantly less than the face value, because the buyer discounts future payments to reflect the time value of money and their profit margin. Use our calculator to see the difference at various discount rates.