Oh No! My Structured Settlement is with AIG!

Many people who have been injured in an accident by the wrong of another often accept a "structured settlement" of the money due them on their case. A structured settlement is a stream of payments to be made in the future by an insurance company on certain dates and in certain amounts, instead of a lump sum payment presently. Structured settlements offer many benefits to the client over a lump sum payment, including a guaranteed rate of interest on the money (a big deal nowadays), the payments received are tax free, and the client has guaranteed income in the future. Structured settlements are also a good deal for the defendant's insurance company, as they pay less money to the structuring company than they would pay up front to the client.

One of the largest structured settlement companies is American International Group. Yes, that AIG. Understandably, many people who have structured their case with AIG are worried that they will get nothing if AIG goes belly-up. Just what would they receive if their structured settlement company went bankrupt?

Well, that depends. There is a law in New York that basically says if the insurance company with whom you have contracted for a structured settlement goes bankrupt, you may be eligible to receive payment from the Life Insurance Guaranty Corporation of New York. (LIGC) LIGC was created by the State of New York to compensate people for their loss, under certain conditions, when the insurance company that owes them the dough goes under.

So how does this work? Assume that Peter Plaintiff was injured in a car accident and that his case was resolved by jury verdict or settlement, after payment of all fees and expenses, for $475,000. This payment would be made by Doug Defendant's insurance company. Instead of accepting the $475,000 up front, Peter decides to "structure" his payout instead, by which Doug's insurance company pays maybe $450,000 to the settlement company. (The $25,000 difference is the benefit that Doug's insurance company realizes by the structured settlement) The settlement company (AIG, for instance) then promises to pay Peter a total of $900,000 by making monthly payments to him of $$$$ for the next xxx years. If AIG were to go bankrupt before anything were paid to Peter, LIGC would step in and pay Peter $450,000. Peter would not get the $900,000 AIG promised to pay, nor would he get the $475,000, which was the original amount Doug's company was obligated to pay. But at least he gets $450,000.