Words and Terms You Need to Know When Involved in a Settlement

Just like computer programmers, engineers, and doctors, lawyers often use a language all their own. And while we non-attorneys will probably never know all their secret phrases, there are some essential words and terms you must know when going through the settlement process.

We’ve broken them down for you and translated the legalese into everyday, easy-to-understand language.


Action: Typically refers to the filing of a lawsuit commencing a judicial process that leads to either a dismissal, award, or settlement of the action. The settlement can be in a lump sum or it can be structured into a series of payments over a period of time by a third party.

Affidavit: A written statement made under penalty of perjury which can follow an official settlement of claims such as in a personal injury action.

AM Best Ratings: An insurance rating system created by A.M. Best & Company to rate an insurance company’s ability to meet their claims obligations.

Annuitant: The person, usually the annuity owner, whose life expectancy is used to calculate the income payment amount on the annuity.

Annuity: A type of insurance product that guarantees a beneficiary a specified level of income over a period of time.

Annuity Owner: The person or persons with the right to change the terms of the annuity, such as surrendering or changing the designated beneficiary.

Asset Manager: The person who is in charge of making decisions regarding assets such as immediate annuities, deferred annuities or stocks and bonds.

Assets: Anything tangible or intangible that is capable of being owned or controlled and that is held to have value. For example stocks, bonds, mortgage loans, real estate, annuities, investments, policy loans and cash.


Beneficiary: The individual or entity that is legally entitled to receive the monetary benefit from an annuity.


Compounding of Gains: Interest is earned on your policy’s principal as well as on interest earned in prior years. Earning “interest on interest” is known as compounding.

Current Interest Rate: The interest rate that an annuity is paying, calculated by summing the base rate, if any, and the bonus rate, if any. The current interest rate is set by the insurance company at the time of issue and is guaranteed for specific length of time.



Effective Interest Rate: The actual annual interest rate that accrues, after taking into consideration the effects of compounding.

Equitable Owner: The beneficiary of a property held in a trust.

Estate Planning: The preparation of a plan of administration and disposition of one’s property before or after death, including a will, trusts, gifts, power of attorney, etc.


Fiduciary: One who is legally and ethically obligated to advance the interests of another before one’s own. This term is usually associated with the type of duty a trustee owes to a beneficiary.




Immediate Annuity: An annuity that is purchased with a single initial payment and begins to pay out immediately.




Legal Lenders: Describes a bank or lender who sells an annuity or structured settlement and who is usually part of the overall personal injury settlement. Another common use of the word includes short-term consumer lenders.

Life Annuity: An annuity that continues to pay out as long as the annuitant is alive.

Loss of Consortium: A legal claim for compensatory damages that alleges the loss of a marital or family relationship, usually in the form of a loss of love, companionship, society and comfort.


Morningstar Rating: A rating of annuity products based on their quality as measured by Morningstar, a leading, independent provider of investment information. Annuity subaccounts are rated with 1-5 stars, with 5 being the best possible rating.


Nonqualified Deferred Annuity: A contract that provides for tax deferral of investment income until withdrawn from the contract.


One-year annualized total return: This percentage figure reflects a subaccount’s total return (gain or loss) forecasted to year end.


Participant: An individual who participates in a retirement plan sponsored either by his employer or, if self-employed, by himself or herself.

Personal Injury Damages: Losses for which the law allows compensation. In personal injury cases this includes economic and non-economic damages.


Qualified Annuities: Annuities purchased for funding an IRA, 403(b) tax-deferred annuity, or other type of retirement arrangements. Structures settlements are deferred annuities in that they provide the same tax benefits.



Structured Settlement Factoring Company: A business that purchases from others the legal right to receive their future settlement payments.

Structured Settlement: An agreement following a personal injury settlement wherein one party agrees to pay another an amount of money in the form of a lump sum or periodic payments over a predetermined period of time. Property and casualty insurance companies typically purchase life insurance products to pay for structured settlements.

Structured Settlement Consultant: One who explains the advantages and disadvantages of different types of annuity structures as well as the inherent risk associated with different types of insurance products.

Surrender Charges: The charge for withdrawing money from an annuity before the date agreed upon in the contract. Surrender charges are typically a percentage of the total premium deposited, and the charge decreases to 0 over time, as the annuity gets closer to the date it will mature.

Surrender Value: The amount in an annuity that is available in cash for loans and that may be available for withdrawals. Accessing the cash surrender value may reduce the death benefit and may increase the risk of lapse.


Tax Deferred Annuities: Annuity contracts for people who want to save on a tax-deferred basis for many years, and then convert to a payout schedule once they retire. Contrary to an immediate annuity, taxes on deferred annuities do not become payable until some years after its purchase. The single premium or regular premiums are capitalized during the deferred period, then the built up capital is converted into an annuity. Deferred annuities typically stipulate that payments be made to the Annuitant at a later date, such as when the annuitant reaches a certain age.

Term Certain Annuity: An annuity with income payments over a set number of years.

Transfer: The direct transfer of funds from one financial institution to another financial institution for the benefit of an individual.


Underlying Portfolios: The stocks, bonds, cash equivalents or other investments purchased with the money you invest in an annuity.


Variable Annuity: An annuity that allows you to invest your money within investment portfolios called subaccounts. Unlike other annuities, a variable annuity does not guarantee a set rate of interest or earnings, but is based instead off fund performance and account averages. However, you can buy, sell and switch funds at any time without incurring taxes until you begin to withdraw your original investment and income after age 59 ½. At that time your gains are taxed as ordinary income.




Yield on Invested Assets: Ratio of net investment income to mean invested assets.