The mechanics are simpler than the vocabulary suggests. A claim settles, the settlement says the money arrives on a schedule rather than at once, an annuity is bought to fund that schedule, and a life company pays you. Understanding which party does which job is what makes the rest of this site legible, because a transfer touches all of them.
From the settlement to the schedule
The settlement agreement fixes what you receive and when: monthly payments for a term of years, annual payments, lump sums at named dates, or some combination. That document is the source of everything afterwards. The obligor - usually the defendant's insurer - is the party who owes those payments, and it discharges the obligation by buying an annuity from a life insurance company, the annuity issuer, which then pays you directly on the agreed dates.
What can and cannot change afterwards
By design, almost nothing changes by agreement. You cannot ask the issuer to pay you early, and the obligor cannot commute the schedule for you. The only route to money now is to transfer some or all of your payment rights to a buyer, and that is the transaction every Structured Settlement Protection Act governs. The statutes call the buyer a transferee and treat the obligor and annuity issuer as interested parties who must be told.
What a Texas court has to find
Texas puts the requirement in the form of an effectiveness rule rather than a penalty. No direct or indirect transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to any transferee unless the transfer has been approved in advance in a final court order based on express findings by the court. Those findings include the best interest of the payee, taking into account the welfare and support of the payee's dependents, and that the payee was advised in writing to seek independent professional advice.
Questions people ask about how do structured settlements work
Does a court really have to approve this?
Yes, in every state. The federal exception in 26 U.S.C. 5891(b) applies only where the transfer was approved in advance in a qualified order, and the order must find the transfer is in the best interest of the payee, taking into account the welfare and support of the payee's dependents.
What is the single biggest variable in the price?
The discount rate, and after that how far in the future the payments you are selling fall due. The reported range across the market is between 9% and 18%.
Do you take a share of what I get?
No. Buyers pay a flat fee for the enquiry itself, never a share of the discount and never anything contingent on a transfer completing.