A structured settlement is a new way of paying common law damages for personal injury or death. It has received strong support from the judiciary and a very favourable response from the Law Commission in its recent consultation paper. The defendant's insurer, usually after having informally agreed a lump sum figure with the plaintiff, will agree to convert part of the damages into a series of periodic payments. To fund the arrangement the insurer purchases an annuity from a life office. The payments are “structured” to meet the individual's needs and are free of tax in the plaintiffs hands. This is because the Revenue have accepted that they may be considered instalments of capital rather than income. In return for making this arrangement the insurer will bargain for a discount on the conventional lump sum figure. Although the first structure was put in place as long ago as 1981, they were not used in other than a few isolated cases until 1991. Now there are almost two hundred of them, and the annuity market, worth £30 million last year, is expected to grow rapidly. Their increasing use constitutes the most radical reform of our damages system effected in recent years.
The Private Life Annuity Market in Germany: Products and Money's Worth Ratios