What Are Structured Settlements in Ontario? 1-800-JUSTICE®

This video explains structured settlements, a financial arrangement often utilized in personal injury cases. A structured settlement involves placing part or all of a settlement into an annuity contract with a life insurance company, providing guaranteed monthly payments over a specified period. This arrangement offers benefits such as tax-free payments and the potential for growth through interest. Structured settlements are particularly beneficial for individuals with serious injuries or mental incapacity, ensuring their funds are protected and providing financial stability. The approval process requires a judge's consent, emphasizing the importance of safeguarding the interests of vulnerable parties. For more information, contact Preszler Injury Lawyers at 1-800-JUSTICE.

Structured settlements are a financial arrangement that occurs when an accident results in a larger settlement. In such cases, an insurance company or your law firm may request that part or all of your settlement be placed into what is considered a structured annuity. The term "structured settlement" can be a bit misleading because it essentially refers to an annuity contract with a life insurance company. An annuity contract is an agreement between you and the insurance company, where they agree to pay you a certain amount of money per month for a specified period of time.

There are various benefits to a structured annuity, one of which is the certainty it provides. You receive a guaranteed amount on the date that the contract begins. In many cases, our clients receive a check from an insurance company on the first of every month. It is important to note that this is not typically from your accident benefit insurance company or through the tort claim from the lawsuit; rather, it is payable from a third-party insurance company, such as Sun Life, Canada Life, or the Bank of Montreal, which offer these products.

By placing your settlement funds into a structured annuity, you not only receive a guaranteed tax-free amount moving forward, but you also earn interest on those payments, allowing the amount to grow over time. The unique aspect of a structured annuity is that you can create a schedule or term for the payments. Some structured annuities are set for five years, others for ten years, twenty years, or even for the lifetime of the recipient.

Structured annuities are particularly applicable in cases involving individuals who are seriously injured or have incapacity issues. For instance, if someone is mentally incapable for any reason and unable to make decisions for themselves, a structured settlement is crucial. It ensures that the settlement funds do not disappear for any reason, providing the accident victim with guaranteed monthly payments for a specified period. For those who are most vulnerable in society, judges will intervene, as the rules of civil procedure outline a test that states if a party is under disability—defined as either being a minor (under the age of 18) or suffering from some form of mental incapacity—judges will step in.

By law, only a judge can agree to or approve your settlement. Even if family members, your own lawyer, or the insurance company believe that a settlement is favorable, it is ultimately the judge who has the final say. The lawyer will provide recommendations and articulate the reasons why a settlement is in the best interest of the party under disability. However, it is the judge who will approve it.

Part of the approval process, which contributes to the popularity of structured annuities or structured settlements, is that judges want to ensure the best interests of the party under disability are protected. One way to achieve this is by ensuring that the settlement funds are conservatively invested in a structured annuity through a reputable chartered bank or life insurance company. This way, when the judge signs off on it, they can be assured that the individual will receive lifetime payments for a specified amount, preventing them from facing homelessness or financial instability.

Additionally, structured annuities help ensure that no one can take advantage of the accident victim. As mentioned, structured annuities are generally reserved for those who are most seriously injured or have mental incapacity. We recommend this approach for such individuals. For those who are capable, it is not our place to dictate how clients use their settlement funds. As professionals, we advise clients to use their settlement funds conservatively, but it is ultimately their decision. However, when it involves children or parties under disability, we have an obligation to ensure that their settlement funds are protected.