Once a claimant or an attorney take constructive receipt of the settlement proceeds, they have a number of alternative insurance solutions to choose from. Each of these options have unique purposes.
Tax-Deferral on Growth
All post-settlement annuity purchases are made with after tax or tax-free (physical injury settlement) dollars and fall within the retirement annuity space. All annuities in this space provide tax deferral on any growth in the product. A portion of each payment is taxable income based on an exclusion ratio upon distribution of the account for retirement.
59½ Rule on Distributions*
With tax deferral comes the expectation that the future use of the annuity is retirement funding. The IRS defines retirement as age 59 ½ or older. If funds are accessed prior to age 59 ½, an additional 10% tax penalty will be added to the owner’s tax rate on the taxable portion of this distribution.
*Periodic payments received on account of personal physical injury or sickness within the meaning of IRC 104 (a)(1) or (a) (2) are excluded form gross income.
Many New Life Carriers Available
Structures is developing opportunities with additional life insurance product providers. With these companies come additional products that may be used with the tax advantages of a structured settlement. The new life carriers’ products can always be used outside of the structure settlement.
Single Premium Immediate Annuities provide periodic payments, usually on a monthly basis typically over the life of the annuitant. Payments can be tailored to meet future financial needs and can be guaranteed for a specific time period payment.
Track a market index to measure potential increases in value or payment amount. The FIA protects the downside risk of the index, guaranteeing principal and credited gains.
DIA’s or Deferred Income Annuities, like SPIA’s offer periodic payments but with a deferred starting date. MYGA’s, Multi-Year Guaranteed Annuities are credited with a set interest rate and maturing date. QLAC’s are Qualified Longevity Annuity Contracts that defer certain required distributions from qualified retirement plans.