Structured settlements: Don’t be fooled by a catchy TV jingle

Prudential works to dispel myths of this important business that often helps injured people maintain their financial wellness.

By John Chartier

April 04, 2019

When you hear the words 'structured settlement,' those late-night TV ads pop into your head, don't they? You know the ones-from companies promising to get you your money 'now!' if you were awarded a personal injury claim.

Dispelling that myth is one of Michelle Caine's primary goals as she assumes the presidency of the 35-year-old National Structured Settlements Trade Association. In fact, the director in Prudential Retirement's structured settlements group not only wants to educate people on what structured settlements are really all about, but she also wants employees to know the company has risen to become one of the biggest players in the market since it first got into it 30 years ago.

'We're helping individuals address financial challenges after a personal tragedy.' Michelle Caine
Michelle Caine

'If you go on the internet today and try to find out what a structured settlement is, you're going to find more information on how to get out of one than information to educate you on what it is,' says Caine. 'I want to focus more on education and raising awareness of our product. We've been reactive for so long, and I think we're in a position now to be more proactive at Prudential and as an industry.'

To set the record straight, a structured settlement is an annuity that pays out a personal injury award over time. Why should people structure these awards? Tax benefits for one thing. They are typically tax-free, as are the investment gains on the assets in the annuity. While lump sum payments are also tax-free, investment gains on it are not. But more importantly, structured annuities help prevent people from spending their money too quickly. How many times have you read about a lottery winner who ended up broke just a few years after winning?

'It's the same thing for many people who win large physical injury settlements,' says Caine. 'They suddenly have this influx of money, they don't know how to manage it and they have all sorts of people with their hands out saying, 'let me help you.' And suddenly, the money isn't there for ongoing medical expenses, living expenses and other things they need.'

Someone who knows the benefits of such a settlement firsthand is Kim. She was injured in a car accident. While being treated, she had a reaction to her medication and she lost her eyesight. She filed a claim and received an injury award, which she structured through Prudential. And just one month later, her husband lost his job. But having structured payments helped keep a roof over their heads, pay their bills and obtain the care they needed.

Each year, more than $250 billion is awarded in personal injury lawsuits, says Caine. Of that, just $4 billion to $6 billion is structured, meaning claimants, the people who are receiving these awards, elect to take their settlements in periodic payments. The rest is taken in a lump sum payment. And of the fraction that were annuitized in 2018, Prudential was the fourth-biggest player in the market, competing against the likes of Berkshire Hathaway, Pacific Life and MetLife.

 'It's definitely a good business for Prudential-we're helping individuals address financial challenges after a personal tragedy, and at the same time we're helping the company's bottom line,' says Caine.

Here's how it works-Prudential and other companies partner with brokers who educate attorneys, judges, claims adjusters and others about the availability of structured settlements. When settlements are awarded, it is most often the plaintiff's attorneys who help individuals become aware that structured payments are an option.

'It's really important for us to get to those influencers, as they are the ones educating their clients on what the benefits are,' says Caine. 'The more people are aware, the more it will trickle down.'

If someone decides to structure their settlement, they work with a broker to determine their needs. A payment plan is then funded with an annuity from Prudential.

Caine, who started her career as an attorney, finds the structured settlements industry much more rewarding.

'When you hear people's stories-everything they've gone through with their traumatic injury-and you see how valuable the settlement is to them and how it has helped them move forward, you can look in the mirror and say, 'I just did some good today.''

 

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