by John Darer® CLU ChFC MSSC CeFT® RSP CLTC Last updated July 24, 2026
What is a Single Premium Immediate Annuity?
A Single Premium Annuity Contract or “SPIA” is a contract between a person or entity and an insurance company. In exchange for the consideration of paying in a lump sum of money to a life insurance company, the annuitant is guaranteed to receive a series of payments over a specified period of time, possibly for the lifetime of the annuitant, or the last to die of two spouses. The amount of the payment is determined by both the current interest rate at the time the contract is issued and by choices made from a wide variety of payment options. Once the contract is issued, the annuity payments are fully guaranteed for the period of time the person or entity has chosen.
What is a Structured Settlement?
A structured settlement is a litigation recovery management alternative that involves settlement claims for future periodic payments that are funded with a qualified funding asset. The asset may be obligations of the United States government or most commonly, in the form of a customizable annuity that may provide one or more payment streams to the annuitant, the annuitant and his or her spouse, the annuitant’s trust, or to survivors. Market based structured settlement options are also available.
Structured Settlement vs SPIA
SOME OF THE DIFFERENCES
A. Required Start Date
- SPIA payments must begin within 13 months of issue.
- No such requirement applies to structured settlements.
ADVANTAGE: Structured Settlement
B. Are There Taxes on Payments?
- A portion of each SPIA payment you receive IS SUBJECT TO INCOME TAXES and a portion is considered a nontaxable return of premium.
- Structured settlement payments that qualify as damages paid for personal physical injury or physical sickness are received income tax free. (see IRC 104 (a))
- Even if your financial advisor shows you a SPIA quote with the same amount of monthly payments as structured settlement it’s like comparing apples and oranges. Yeah, they’re both fruits, but you must calculate the after tax benefit on the SPIA for an accurate comparison!
ADVANTAGE: Structured Settlement
C. Are Multiple Payment Streams Possible in a single contract?
- Most life insurance companies limit SPIA payment streams to one payment stream per contract
- With a structured settlement one or more different payment stream can be combined in a single contract, thus reducing the adminstrative burden for the annuity issuer and the payee.
- Moreover structured settlement payments can be designed in a number of different ways, immediate, deferred, income payments and lump sum payments, step payments, fixed increases and more. For more info on the types of structured settlement payments click here
ADVANTAGE: Structured Settlements
The Rated Age Advantage on Lifetime Payments or Life Contingent Payments?
- Rated ages offer a discount on the cost to provide lifetime income. Said another way, a rated age boosts the amount of the annuity payment for each dollar spent on a lifetime annuity
- Most structured settlement annuity issuers offer rated ages.
- Some issuers of SPIAs offer rated ages. Even if a SPIA issuer offers rated ages, the rated ages offered to the class of annuitants eligible for structured settlements is generally more favorable than offered to SPIA annuitants
ADVANTAGE: Structured Settlements
If you Need Liquidity Down The Road What Are The Options With a SPIA v Structured Settlement?
- Both structured settlements and SPIAs are long term commitments offering financial security
- You should not be in a structured settlement or SPIA if your time horizon is only a couple of years.
- There is a ready market of individual investors and companies who are willing to purchase the rights to receive both SPIA and structured settlement payments that you may be willing to sell. Some are ethical and some are not so ethical. Beware of wolf applies!
- in order to liquidate structured settlement payment rights you must go through a Court where a judge must approve that the liquidation or transfer of payment rights is in your best interest. This is for your protection and the majority of states have a structured settlement protection law on their books.
- Liquidation of SPIA payment rights does not involve Court approval. While some may perceive this as advantage it just removes a layer of consumer protection because the business practices companies that are involved in the business of “factoring” are virtually unregulated.
- You can sell all or only a portion of your structured settlement or SPIA payment rights.
ADVANTAGE: EVEN
Without knowing all the facts of the particular situation it is hard to say if the financial adviser committing malpractice in the scenario described by my industry colleague. Presuming that a qualified settlement is not being used and from what I understand it isn’t , one thing is for sure . Once the plaintiff signs the release with the defendant he or she has forever lost the opportunity to structure the settlement. CAVEAT EMPTOR!
USEFUL LINKS
Structured Settlements | Tax Benefits of Structured Settlements (4structures.com)
Tax Advantages of Structured Settlements | Taxable Equivalent Yield Chart (4structures.com)
Structured Settlements | What Is a Structured Settlement? (4structures.com)
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