A lot of people are not really clear on the differences between annuities and structured settlements. Maybe it is because they have some similarities in the way that they perform in that in most cases they provide a monthly or yearly set amount of income. After that, the similarities pretty much end.
Some very basic information about this subject is given below, and while not meant to be all encompassing it should be sufficient enough to provide a general outline of the differences between the two.
- An Annuity is a financial instrument designed and often provided by an insurance or investment company to give an investor a set and sometimes somewhat guaranteed rate of return on that investment. Insurance companies provide a type of insurance that is often called "variable life" or some variable on that term that not only gives the purchaser a set amount of coverage on their life should they die, but also builds up a nest egg for them that after a set amount of time the purchaser can then start to draw against and provide them a monthly or yearly income.
- A Structured Settlement is something that is usually awarded to an individual by a court of law after a lawsuit following an accident whether it be automotive accident that caused serious injuries, an injury suffered in the workplace, or other situation where an individual was caused physical harm due to neglect or the actions of another person, company, or business. These cases can vary from the things mentioned above to things such as product liability cases, where someone is harmed by defective manufacturing and faulty products, to health care related injuries caused by an inattentive surgeon or medical doctor. Most people are familiar with the word "malpractice". That term gets used a lot in the health care field.
So while both an annuity and a structured settlement can and often do provide a set amount of income to an individual, the reasons for the pay out are quite different. That is not to say that someone who received a settlement could not use the money and invest it into an annuity type product to attempt to gain even more money over time, but that is a discussion for another article.