Annuitant — The person entitled to receive annuity payments or who now receives them.
Annuity — Insurance contract from which a person receives fixed payments for a lifetime or defined period of time.
Annuity certain — Annuity designed to make payments for guaranteed period of time. Payments may be made periodically such as monthly or annually. Payments may also be made immediately or deferred, i.e. beginning 05/01/1995, $1,000 per month for 5 years certain. Also known as period certain.
Annuity with compounding benefits — Annuity that increases at a fixed percentage computed on previous year’s payments. Frequently expressed as an addition to an annuity, i.e. with 3% compounding annually.
Assignee — A person or entity to which legal liability is transferred for an obligation.
Assignment – The act of transferring to another all or part of one’s property, interest, rights or obligations to another.
Assignment company – A company that has a relationship with the annuity issuer. It accepts the assignment of the liability to make the future periodic payments as outlined in the Settlement Agreement. The assignment company purchases an annuity from the annuity issuer to fund the future periodic payments and retains ownership of the annuity in order to preserve the tax-free status of the payments.
Assignor – The original party obligated to make the future payments outlined in the settlement agreement and is transferring its obligations to a third party (Assignee).
Beneficiary — The person(s), estate, or financial instrument (for example, a trust fund), named in the policy as the recipient of the guaranteed payment in the event of the policyholder’s death. Also known as contingent payee.
Benefit — An amount payable from an annuity by the insurance company or the self-insured entity to a claimant or beneficiary.
Cash refund — Lifetime annuity with guaranteed benefit equal to the premium amount. Commonly used for Workers’ Compensation cases. Beneficiary is the casualty company. The balance of the premium (after all payments made) is deducted and returned to the casualty company in a cash lump sum.
Certain and life annuity — Annuity designed to make payments for the life of the annuitant with specific number of years guaranteed, regardless of life or death. Payments may be made periodically such as monthly or annually. Payments may also be made immediately or deferred, i.e. beginning 05/01/1991, $1000 per month for 15 years certain and life.
Claim — A claim is a demand by a person or entity that is seeking to recover for a loss. A claim may be made against an individual or an entity. A claim may also be made against an insurance company, when an insured asks the insurance company to pay for a loss that may be covered by an insurance policy.
Claimant — A person(s) who asserts a demand seeking to recover for a loss and who is the recipient of the structured settlement.
Commutation rider – A rider placed on the structured settlement policy allowing the heirs upon the death of the plaintiff to receive a percentage of the present value of the annuity to help with estate taxes.
Constructive receipt — Per the Internal Revenue Code, money representing income not actually received or in the possession of the taxpayer may be considered received as income and therefore taxable. Constructive receipt is said to have occurred if that income is credited to the taxpayer without a restriction on the taxpayer’s right to bring that income within his control.
Contingent payee — The person(s), estate, or financial instrument (for example, a trust fund), named in the policy as the recipient of the guaranteed payment in the event of the policyholder’s death. Also known as beneficiary.
Daily rates – If market conditions on a particular day warrant it, life insurance companies will offer rates that are more competitive than their book rates. Day rates can provide the plaintiff with significantly improved benefits if utilized correctly. Daily rates remain valid for a specified period of time set forth by each company.
Deferred annuity — Annuity in which payments begin at a stated time in the future.
Education fund — Funds paid over a specific period, usually starting at age 18 and continuing through typical educational or vocational training years.
Employment — Examples of employment claims might be related to wrongful termination, sexual harassment, wrongful discipline, failure to employ or promote, or discrimination.
Expected payout – This payout calculation incorporates the life expectancy of the annuitant. It includes guaranteed payments and life-contingent payments to the annuitant’s statistical life expectancy.
Financial ratings – The relative financial strength of all life insurance companies is inspected and graded to provide consumers with important decision-making criteria. Several independent ratings firms, such as AM Best, Fitch, Moodys and Standard & Poors judge the relative well being and financial stability of the company.
First payment date — Date payments begin for the entire settlement or for the annuity chosen. Funding date – Every structured settlement quote hinges on a date when the settlement monies are expected to reach the annuity issuer. The benefits displayed on the quote depend entirely on the funding date. Subsequently, any change to the funding date changes the benefits.
General liability — For the most part, claims for injuries or damage caused by ownership of property, manufacturing operations, contracting operations, sale or distribution of products, and the operation of machinery, as well as professional services.
Guaranteed benefit — Payments made regardless of whether the annuitant is living or deceased.
Injured party — A person (or persons) who is the recipient of the legal action and receives the benefit of the resulting structured settlement. Installment refund — Lifetime annuity with guaranteed benefit equal to the premium amount. Commonly used for Workers’ Compensation cases. Beneficiary is typically the casualty company and payments are made in installments as designated in the annuity.
Joint and survivor lifetime annuity — An annuity designed to provide payments for two annuitants whether living or deceased. May be a guaranteed period and the percent of payment received upon the death of one annuitant may vary. Payments may be periodically, immediately or deferred, i.e. beginning 05/10/1991, $1000 per month for 10 years certain and life, 100% joint and survivor).
Last guaranteed payment date — Date when final guaranteed annuity payment is made for a lifetime annuity with a period certain.
Last payment date — Date when final annuity payment will be made for a certain only annuity.
Level annuity – An annuity with payments remaining the same for the duration of said payments.
Life insurance company — A company that provides the annuity policy, i.e. AIG American General Life, Hartford Life, New York Life. Also known as annuity issuer.
Life only annuity — Annuity with payments that continue only during the life of the annuitant. There is no other guarantee and payments cease at death.
Lifetime annuity — An annuity designed to make payments for the life of the annuitant only. Payments may be made periodically such as monthly or annually. Payments may also be immediately or deferred, i.e. beginning 05/01/1991, $1000 per month for life.
Lock in – Locking into a structured settlement quote preserves the quoted benefits provided that the funding date is met.
Lump sum annuity — Annuity designed to make a single payment on a specific date.
Medical malpractice — A term used to describe claims resulting from improper medical care or treatment resulting in a significant deterioration of a person’s health status caused by a medical practitioner (such as a doctor, hospital, or other medical provider) who did not follow generally recognized medical practice standards.
Medical trust — Trust account from which medical expenses are paid for the annuitant.
Normal life expectancy — Age to which a person is expected to live from their present age. Figure is based on statistics gathered by the life insurance companies.
Novation – The substitution of a third party for an obligor with claimant’s consent.
Owner – One who owns the annuity. In most cases it is the purchaser, i.e. the casualty insurance company, self-insured or their assignee.
Period certain — Annuity designed to make payments for guaranteed period of time. Payments may be made periodically such as monthly or annually. Payments may also be made immediately or deferred, i.e. beginning 05/01/1995, $1,000 per month for 5 years certain. Also known as period certain.
Periodic Payment Act of 1982 — Also known as Public Law 97-473. Various tax rulings were brought into statutory certainty and added Section 130 to the Internal Revenue Code that authorized qualified assignments.
Personal injury — An injury to a person’s body or mind. An injury to a person’s body is considered a physical injury. Examples are: a sickness resulting from an injury, loss of limb, a dog bite, or one’s life. A personal injury of the mind might be such as defamation of character or wrongful termination.
Plaintiff — A person or entity that brings a legal action against another party and that is seeking some kind of legal remedy to the situation from the accused party (defendant).
Premium — Cost of the complete annuity portion of the settlement.
Proposal — Structured settlement package presented to the client as a suggested solution for settlement.
Public Law 97-473 — Various tax rulings were brought into statutory certainty and added Section 130 to the Internal Revenue Code that authorized qualified assignments.
Qualified Assignment — The term means any legal transfer of a liability to make periodic payments as damages on account of personal injury or sickness in a case involving physical injury or physical sickness if a) the transferee assumes the liability from a person who is a party to the suit or agreement; b) the periodic payments are fixed and determinable regarding amount and time of payment; c) the periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments; d) the assignee’s obligation is no greater than the obligation of the person who assigned the liability; and e) the periodic payments tax-free to the recipient under section 104(a)(2).
Qualified funding asset — Annuity or U.S. government obligation purchased in accordance with Section 130 of the Internal Revenue Code.
Quote — Price given by a life insurance company for specific annuitant and benefit package.
Rate changes – Structured Settlement payments contain a fixed interest rate. This rate is subject to market conditions at the time the structured settlement quote is generated. Periodically, companies change their rates to compete within the market place.
Rated age – When plaintiffs are seriously injured they may have incurred a reduction in their life expectancy. Obtaining a rated age for a plaintiff allows life insurance companies to price lifetime contingent benefits with more accurate mortality information. This allows the plaintiff to receive significantly better lifetime benefits for a more competitive price.
Revenue Ruling 79-220 — Ruling on the analysis of sections of the IRS code concerning the tax-free status of monies received from personal injury situations.
Reversionary trust — Trust account from which remaining or residual amounts are paid back to the funding party upon termination of the trust.
Rule 11 Agreement – Usually referred to as the mediation agreement. The defendants or their liability carrier will often insert stipulations concerning the structured settlement into this binding agreement creating many ramifications for the plaintiff.
Section 104(a)(1) — Part of the Internal Revenue Service Code that allows monetary amounts received under workers’ compensation acts to be excluded from the gross income amount on a person’s tax filing.
Section 104(a)(2) — Part of the Internal Revenue Service Code that allows monetary amounts received for physical injury or sickness to be excluded from gross income amount on a person’s tax filing.
Section 130 — Part of Public Law 97-473 that amended the Internal Revenue Code of 1954 to allow qualified assignments to third parties to be responsible for making payments to claimants on cases involving physical injury or sickness. The law allows the assignee to pass the payments to the recipient(s) tax-free.
Secured creditor – A claimant holding a priority interest in property owned by an obligor.
Settled case — A case in which all parties have accepted the proposal.
Settlement agreement — Legal document executed by all parties of a lawsuit or claim stating case facts and terms by which plaintiff releases the defendant. Payments made by defendant, purchase of annuity and consent language for the assignment may appear within the document as well.
Single premium deferred annuity — Annuity purchased for a single premium with a payout at a later date.
Single premium immediate annuity [SPIA] — Annuity purchased for a single premium with an immediate payout.
Special Needs Trust – Helps keep a plaintiff’s public assistance benefits intact after receiving a settlement. It can be used in conjunction with a structured settlement to create a lasting settlement that does not jeopardize publicly assisted benefits.
Split funding – Placing the structured settlement with two or more life insurance companies to diversify and protect the investment.
Step annuity – An annuity that increased by a fixed amount at specified future times.
Structured settlements — Settlement of claims or lawsuits by means of periodic payments. May be funded by the purchase of an annuity policy.
Workers’ Compensation case — A case that involves a Workers’ Compensation claim or injury on the job as defined in IRS Section 104(a)(1). Such a case requires employers to pay benefits for on-the-job injuries, and to pay benefits to dependents of employees killed by occupational accidents.
