Find out the difference between annuity payments and lump sum payments before you accept an offer from the insurance company.
The sole purpose of a injury lawsuit is to retrieve damages for the victim so that they may pay for losses (i.e., pain and suffering, medical costs, lost wages, and more).
In some cases, these lawsuits settle during pretrial negotiations. During negotiations, both parties sit down and discuss damages and come to an agreement on an acceptable amount of compensation due. Sometimes, the payment structure is negotiated too, including the idea of a structured settlement.
With structured settlements, the victim agrees to accept fixed payments from the defendant’s insurance company in installments. These installments could be monthly, weekly, bi-annually or annually. Instead of one lump sum of money delivered at once, the victim receives compensation over time.
Can You Get a Structured Annuity Settlement in a Philadelphia Car Accident Case?
Yes, you could accept an annuity. However, before you pick installments, you should consider the pros and cons. Also, speak with an attorney about your options. Because while insurance companies can make annuities appear fabulous, they do not work for everyone or every situation.
An annuity payment system is how the insurance company will deliver your structured settlement. The annuity company will work with the insurer to create a payment package. The company then provides the installments in the agreed upon method.
Annuities are contracts that ensure you will receive sufficient funds. And the higher the settlement, the more assurance the annuity company requires from the insurance company.
Pros and Cons of Accepting Structured Settlements
As with any settlement, there are pros and cons if you opt for a structured settlement. Smaller settlements do not need an annuity because the cost of setting up the annuity agreement is more than necessary.
The Benefits of Structured Settlements
If you have a catastrophic injury with higher damages, then an annuity may be an option for you. Some benefits of opting for structured payments versus one lump sum include:
- Easier to Manage Funds – When you receive a lump sum, you may find it easier to spend the money and the funds dry up quickly. With structured payments, you have continuous income, which is good if you are permanently disabled and cannot work anymore too.
- Distribute Funds Over Time – With structured settlements, your compensation is distributed over time, which allows you to use government subsidies but also live off the payment you were awarded.
- Tax Breaks – You are not taxed on an injury settlement except for the portion covering lost wages and any punitive damages. When you receive the funds in a structured settlement plan, you will not face the same tax issues.
- Access to Emergency Lump Sum – If for some reason you have a financial emergency that requires accessing your compensation, you may be able to take an emergency payout. However, there are often fees for this arrangement.
The Drawbacks to a Structured Settlement
While there are distinct advantages to an annuity, you also have drawbacks to consider:
- Revoking of Tax Benefits – If you are in control over the settlement process too much, the government has the right to cancel your tax benefits, which means you could be taxed on the funds received. Naturally, a reasonable attorney can help avoid this.
- Delayed Payments Due to Bankruptcy – If that insurer were to go bankrupt, you are protected by insurance laws that will ensure you receive your money. However, the insolvent insurer may delay your payments, and you will be unlikely to receive them in the amount or schedule initially negotiated.
- Lower Monthly Payments – When certain economic conditions arise, you may receive a lower monthly settlement payment.
- Lower Overall Funds – When you opt for structured settlements, you have multiple parties involved and each party gets a cut of the funds proposed for their fees. Therefore, you may end up with less overall than had you just taken a full lump sum up front.
The Better Option: Management
While the idea of receiving continuous income reels most victims into the structured settlement game, it may be in your best interest to take the lump sum and use a financial manager instead. This party can issue checks to you monthly, but you are also in control of the funds. This helps you avoid unnecessary delays when you need emergency funds – and avoids the risks of an insolvent insurer.
Also, when you take a lump sum, you are more likely to receive the compensation you need and not lose funds to multiple parties handling your settlement payments. While you will have to pay any health insurance liens, outstanding debts from the accident, and your attorney, you still walk away with more money taking a lump sum than going through multiple payments.
Do You Need an Attorney for a Structured Settlement Negotiation?
A plaintiff should always make an informed decision before taking any settlement – whether structured or lump sum. If you are considering either option, you should still consult with an attorney. Even if the insurance company is offering what seems like a reasonable settlement amount, an attorney will not only make sure you receive fair compensation, but also that the contract is drawn up in your favor – not the defendants or insurance company.
An attorney protects your rights during an accident settlement. They are your advocate, and they work alongside insurance companies and financial professionals to not only secure compensation but look out for your best interests while you recover from your injuries.
Hire a Personal Injury Advocate Today
If you or a loved one was seriously injured in a motor vehicle accident, contact an attorney immediately. Victims in Pennsylvania can reach out to me, Jeffrey H. Penneys, Esq.
You can reach me for a free, no-obligation consultation now: Office – 800-465-8795, Cell phone – 215-771-0430. You can also ask me a question online by completing the online contact form.