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Types of Annuity Payments

When your client is awarded a settlement, an annuity can be utilized to parse out payments and ensure that funds are being distributed sensibly. After working tirelessly to build your client’s case so that they receive a fair settlement, you want to guarantee that their settlement retains its value for years to come. An annuity, which is typically a contract between a plaintiff and an insurer, disseminates payments in regular intervals to provide a stream of income for years to come.

There are many types of annuities including fixed, fixed index, variable and indexed, but fixed and fixed index are the most commonly used types of annuities for structured settlements. Understanding the differences between these types of annuities is integral to maximizing your client’s settlement. A settlement planner can partner with an attorney to help their client benefit from a tax-free annuity.

The Two Phases Annuitization

An annuity is a product of financial institutions that have the resources to manage payouts and improve the value of a settlement. A structured settlement through an annuity can offer a much greater value than a lump-sum payment. Plaintiffs who work with a settlement planner will invest funds into an annuity with the intention of receiving payments later on.

There are two phases of an annuity, the accumulation phase and the annuitization phase. During the accumulation phase, the annuity is funded and prepared for future payouts. Once your client begins to receive payments, the contract has officially entered the annuitization phase.

Common Types of Annuity Payments for Structured Settlements

As we mentioned above, the purpose of an annuity is to exchange a lump sum payment (or settlement) for a series of disbursements that help the plaintiff maximize the value of their settlement. Annuities can be used to help cover specific financial needs including principal protection, lifetime income, legacy planning, or the cost of long-term health care.

For personal injury plaintiffs, a tax-free annuity can be acquired under 104(a) of the IRS codes, which establishes that all personal injuries cases are exempt from federal and state income taxes.  

Annuity payments can begin immediately following the receival of the settlement or at a specified date in the future. Some types of annuity payments include:


  • Fixed Annuity: provides the settlement recipient with regular, secure payments every month. A settlement planner can help determine the level of funding needed on a monthly basis to cover the recipient’s bills and living expenses.
  • Fixed Index Annuity: unlike a fixed annuity, a fixed index annuity readjusts according to market conditions. Typically, this type of annuity is utilized by recipients hoping to turn their annuity into an investment. Recipients can take advantage of a healthy market, and since this type of annuity is still “fixed” there’s no downside if the market takes a dive.


When you work with a settlement planner from Synergy Settlement Services, your personal injury client can take advantage of a tax-free settlement by receiving payments through a tax-free annuity.

For more information about how you can benefit from a tax-free settlement or to schedule a consultation, please submit our contact request form.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

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