Most personal injury plaintiffs choose to receive their settlement in a lump-sum payment. In other words, they prefer that the defendant (or the defendant’s insurance company) pays them the entire settlement amount in one payment. Some plaintiffs, though, prefer to have their settlement paid to them in what is called a “structured settlement.”
In a structured settlement, the defendant pays all or a part the settlement to the plaintiff in a series of guaranteed payments made over a specified length of time. Typically, a part of the settlement will be paid as a lump-sum payment, with the remainder paid in regular installments over a period of months or years, even for the rest of the plaintiff’s life.
How Structured Settlements Work
In a structured settlement, you agree to have the defendant transfer all or a part of your settlement to another party – most often a life insurance company that manages structured settlements and other annuities. This company will then invest the settlement funds and make a series of guaranteed payments to you over the negotiated period of time.
A structured settlement can be designed to fit your current and future financial needs. In fact, every aspect of a structured settlement can be tailored to benefit your particular circumstances, including:
- The length of the structured period
- The frequency of the structured payments
- The amount you will receive in each structured payment
- Whether you receive a lump-sum payment at the begin or end of the structured period
- Whether or not your payments should stop if you die before the end of the structured period, or should continue to be paid to your beneficiaries
For example, you can structure a $600,000 settlement so that you (or your heirs) are paid $50,000 per year for the next 20 years. That would be a total of $1 million paid to you over a period of 20 years – including an extra $400,000 in tax-free income, since the growth on a structured settlement is tax-free.
The idea is that the insurance company believes that it can invest the $600,000 at the time of the settlement, and that their investment will be good enough to make all of the payments to you over the 20 year period with additional money for themselves.
Why Choose a Structured Settlement?
An increasing number of personal injury victims are choosing structured settlements over lump-sum payments for the following reasons:
- You can guarantee that you will have money available to support your family, pay your mortgage or your car note, save for your children’s education and for long-term care, or pay future medical needs after a catastrophic injury.
- You can protect yourself against exploitation and/or bad financial decisions.
- Structuring your settlement allows you to exponentially grow your settlement amount, tax-free.
Structured settlement payment disbursements are tax-free and guaranteed. It is important, however, that whichever company you entrust to manage your settlement funds is well-established and highly rated, because if the company goes bankrupt, you may be left with nothing at all. For this reason, there is a bit of risk associated with a structured settlement.
Structured payments are most often chosen as a disbursement option for very large settlements and in situations where a person has suffered debilitating injuries and will need lifelong care,. They are also used when there is a child involved who has suffered significant injuries and would ordinarily not receive any money until he or she reaches 18 years of age. Conversely, structured settlements are extremely uncommon with smaller settlements, particularly involving adults.
Why Choose a Lump-Sum Payment?
Lump-sum payments can be helpful if you need money right away. You may, for example, have outstanding bills that need to be paid, or you may want to buy a home for your family. You may want to buy a new car, invest in a business, or pay your children’s tuition. If you need money today, rather than down the road, receiving a lump-sum payment may be a good choice.
But, it doesn’t have to be one of the other – either a lump-sum payment or a structured settlement. As mentioned above, you can choose to receive part of your settlement as a lump-sum and structure the rest. For example, if you are awarded a $1 million settlement, you can choose to receive an immediate lump sum payment of $400,000 to pay your attorney fees, put a down payment on a home and pay off outstanding medical bills not covered by insurance. The remaining $600,000 can then be structured to provide you with guaranteed income over the next 20 years at a rate of $50,000 per year.
Free Consultation with Pennsylvania Personal Injury Lawyer
Contact Jeffrey H. Penneys, Esq. for assistance in a personal injury case. You have the right to expect fair monetary damages if another party’s act of negligence led to your injuries. As a trial lawyer and aggressive litigator, as well as a lawyer with deep compassion for those he serves, you can trust that everything possible will be done to help you pursue maximum compensation for damages. Call 1-800-InjuryLaw or 215-771-0430 (cell) for a free, no-obligation consultation.