A structured settlement resolves a claim, most commonly a personal injury or wrongful death case, by paying the plaintiff over time rather than in a single check. The defendant or its insurer typically funds the arrangement by purchasing an annuity from a life insurance company, which then makes the scheduled payments directly to the claimant according to terms negotiated as part of the settlement, such as monthly payments for a set number of years, periodic lump sums, or payments keyed to the claimant's life expectancy.

The payments carry a meaningful tax advantage: under Internal Revenue Code sections 104(a)(2) and 130, properly structured settlement payments for personal physical injury are generally excludable from the recipient's gross income, including the interest-like growth built into future payments, which a lump sum invested independently would not enjoy. Settlement schedules are often built around a claimant's projected medical needs, and a secondary market of factoring companies exists for claimants who later want to sell future payments for present cash, though most states require court approval before a sale can proceed.

The trade-off is liquidity for security. A structure removes the claimant's investment risk and the temptation to spend a large lump sum too quickly, and it can preserve eligibility for need-based government benefits when paired with a special needs trust, but it also limits the claimant's control over the money and locks in an interest rate at the time of settlement. Defendants and insurers often favor structures because the present-value cost of funding the annuity is typically lower than the nominal total of the payments.

Structured settlement brokers, plaintiffs with long-tail injuries, and insurers negotiating catastrophic-injury claims all rely on structures to convert an uncertain future-damages dispute into a defined, tax-advantaged payment plan. Insurers favor them because the discounted funding cost is lower than paying the same nominal amount today.