Structured settlements are a type of settlement award in a legal personal injury case. Personal injury plaintiffs who win or settle a case can typically choose to receive their settlement as a single lump sum or a series of payments over a specific period of time in what’s known as a structured settlement. This type of award has many advantages and disadvantages over a lump sum payment so it’s important to understand how it works and when you should consider it.
How Does a Structured Settlement Work?
When you take a personal injury award as a structured settlement, you will receive periodic payments for a fixed number of years instead of a lump sum. As an example, a $1 million settlement can be structured in a way that you receive $100,000 every year for ten years or you may receive a $200,000 initial payment followed by $80,000 a year for the next ten years.
Structured settlements can be tailored to fit your needs and give you money when you need it most to pay for medical expenses, replace lost wages, and more. There are also several ways to receive the award. The following are some common options:
- Payments that increase over time. In this case, payments begin fairly low but increase as the years go on.
- Payments that decrease over time. This is a popular option if you are disabled but expect to return to work eventually and have increased income at some point.
- Large initial payment. This is a common choice for people who have medical expenses and have been out of work due to their injuries. With this type of structured settlement, you receive a large initial payment to pay medical expenses and cover important expenses you have now, such as paying off a home loan or modifying your home. Later payments can help supplement lost income.
- Additional amounts for extra expenses. You can structure the settlement to provide annual income plus additional amounts that can be used to pay for extra expenses as they come up.
In most cases, the defendant purchases an annuity from an insurance provider to carry out the periodic settlement payments. This option frees the defendant from the obligation and transfers the payments to a company with more expertise managing periodic payments.
Pros and Cons of a Structured Settlement
A structured settlement can offer several benefits, although how it will affect you depends on many factors. For example, whether you choose a lump sum or structured settlement can affect how your award is taxed.
The primary benefit of a structured settlement is it gives you regular and certain income over a fixed period of time. While this is usually a good option for adults, it may not be the best option for minors as a lump sum payment allows for long-term investing of the settlement award. Individuals who have suffered a significant injury that will require medical expenses in the future may also benefit more from a lump sum payment.
Because these settlement plans can be tailored to your needs, it can provide an upfront payment to cover your immediate expenses while allowing you to return to work when possible and count on future income. Nearly every aspect of a structured settlement can be negotiated, including the length of the structure, how often you want payments (such as once a year or monthly), how much money should be in each payment, whether you want a lump sum payment at the beginning or end, and whether you want payments to continue for heirs.
If you are settling a large personal injury case, a structured settlement can also offer additional benefits: the structure will guarantee you will not spend the money too quickly and it may save you money on taxes as you will generally owe taxes on dividends and interest earned on settlement income.
If you have a personal injury claim and you are not sure how to proceed, a personal injury attorney can help you understand how much your case may be worth and explore how a lump sum or structured settlement may affect you.
What Our Clients Say About Us
"I had an accident that almost cost me my life. At first I was not going to pursue a case because, I was thinking how could I afford an attorney being a college student? But Farar Law changed all of..." -Rhyann H.Read More
"I was driving home merging onto the 110 S/B FWY, when I was rear-ended. Immediately, I felt pain to my lower back and neck. Initially I thought I would be okay, but as time went by I wasn't feeling any..." -Robert F.Read More
"My daughter and I, were victims of a drunk driver. He went off the freeway and landed on my vehicle. My back window was shattered and my baby was in the backseat. Luckily we were okay. Sore and bruised, but..." -Amanda Ortega.Read More
"I had an accident that almost cost me my life. At first I was not going to pursue a case because, I was thinking how could I afford an attorney being a college student? But Farar Law changed all of..." -Fabian V.Read More