What You Need to Know about Structured Settlements

If you have been the plaintiff of a successful lawsuit for an accident or personal injury, it is highly possible the trial did not make it to court. Instead, an agreement to settle the lawsuit with money outside of court has been reached. Usually, this agreement results in cash. As the plaintiff, you have two options: you can choose to receive all of your money at once, or you can choose to receive the money in payments, which is known as a structured settlement. Before you choose the type of payment for your damages, there are several things to consider. Consult with a personal injury lawyer to make sure you are choosing the best settlement type for your situation.

Tax Effect

One thing to consider is the tax effect of structured settlements vs. lump-sum payments. When you choose a lump-sum payment, you must claim your settlement as income. This is reported on your taxes, and may have negative effects on your tax return. Structured settlements, on the other hand, are considered an annuity. Provided you do not have control of the release of the settlement, it is tax-free.

Inflation and Recession

One of the problems with a structured settlement is that it does not change if recession or inflation occurs. This could leave you with money that is less valuable than it was at the time of your settlement. In contrast, lump-sum payments are paid out at once, giving you the opportunity to invest in treasury bonds that will be affected by the economy.

Spending Responsibly

Statistically, the majority of plaintiffs in successful lawsuits who receive lump-sum payments have the money spent within five years. The reasoning for this is that the large amount of money may encourage them to make extravagant purchases, instead of saving for the future. When you choose a structured settlement, you only receive payments throughout the length of the settlement. This ensures you have money in the future. This is especially beneficial if you have become permanently disabled and are unable to work.

Current Financial Needs

Some individuals who are receiving a settlement from a personal injury lawsuit have financial needs greater than the structured payment amounts. This could be caused by medical costs not covered by insurance related to the case at hand. If pressing hospital bills are an issue for you, then choosing a lump-sum payment could be crucial to maintaining your financial stability.

Settle Easier

Many defendants do not favor a lump-sum payment because it will leave them in debt. In this case, they may be very reluctant to choose this option. If a structured settlement is an option, however, they can make payments over time. This can be less stressful on the defendant, making it more likely that the case can be settled outside of court.

Protection of Funds

As a structured settlement is considered an annuity, it is covered by state insurance laws. This ensures that you continue to receive your structured payments, even if the defendant of the lawsuit goes bankrupt. When you choose a lump-sum payment, however, you must purchase insurance for the money.

Extent of Injuries

In some cases, the accident may have caused damage so severe that you are incapable of making purchasing decisions. In this case, choosing a structured settlement will ensure the longevity of your payments. It will also ensure you have enough money to secure the cost of living and medical care in the future. This especially true if the accident caused damage that will progress over time.

If you are unsure of your settlement options or find yourself considering an impending court case, consult a personal injury lawyer like David Heil to make sure you understand your options and their implications.

Lautaro Martinez is a freelance writer and professional student who contributes articles and practical advice on a variety of issues that affect families and small business owners.

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