Injuries cause the deaths of 214,000 people in the United States each year. While this statistic is a depressing one, it’s only a small tip of the iceberg. For each person that dies from injury, 13 are hospitalized, while 129 visit the ER.
Many people who suffer injury often experience lifelong physical, mental, and financial issues. That’s why it makes sense to seek compensation when the injury was someone else’s fault.
After winning their compensation cases, personal injury case plaintiffs may opt to receive structured settlement payments instead of a one-time lump sum. To help you get the facts on structured settlements, we’ve prepared a comprehensive guide on this settlement option.
What Is a Structured Settlement?
It refers to a stream of payments made to a person who has settled or won a civil lawsuit, such as a personal injury case. The defendant must fund the settlement.
The main difference between a structured settlement and a lump sum settlement is that payments in structured settlements continue over time. Thus you have long-term financial security as the recipient.
Get the Facts: Here’s What You Didn’t Know About Structured Settlements
Choosing between the two lawsuit payout options can have long-term personal and tax consequences. If the payment stream option seems like the ideal choice for you, here are eight things to know before signing the contract.
1. You Have a Choice on How to Structure the Payments
One of the best things about structured settlements is that you have a variety of options to choose from when it comes to deciding how to receive payments. Here are some of the available options:
A Large Initial Payment
This payment option is especially desirable for people with mounting bills and who haven’t been employed for a while. You can opt for a large initial payment so you can pay overdue bills, purchase items you need, pay off your mortgage, and so on. The smaller payments that then follow can act as a substitute for lost income.
Additional Payments for Extraordinary Expenses
Some people opt for settlements that provide a yearly income, plus additional payments for extraordinary expenditure. Such expenses include college tuition.
Amounts Increase Over Time
You can choose to design your structured settlements to increase over time. In this case, payments start relatively low and end considerably higher.
Amounts Decrease Over Time
This payment structure is the opposite of the design above. Payments start high and decrease through the years. The structure is preferable to people who expect their income to go higher over time.
Some plaintiffs opt to delay payment until a much later time. For instance, you may choose to delay payment until you reach retirement.
2. Payments Are Tax-Free
Apart from such payments as attorney fees and punitive damages, structured settlements are tax-free, unlike a single payment that’s taxed as income. That’s because structured settlement payments are paid out by an annuity that’s been purchased by a structured settlement company, such as Rightway Funding.
Given that you don’t control the annuity, the payments you receive cannot be taxed. As long as the structured settlement firm retains control, your cash payments remain tax-free, which gives you more money than you would by opting for a single payment.
3. Payments Do Not Adjust for Inflation
Things like economic inflation are inevitable, regardless of your state. Unfortunately, payments on structured settlements do not adjust for any changes in the economy, including inflation.
The smart thing to do is to set up larger payments further in the future instead of now. Note that the further away into the future a payment is, the less its worth will be.
4. Selling Your Structured Settlement Payments Is Possible
Perhaps your payment stream doesn’t work for you any longer. The good news is that you have options, one of which is to sell your settlement for a single payment. This helps you receive more cash when you need it sooner for pressing financial needs.
Selling a structured settlement is, of course, a process, so talk to your structured settlement company on how to go about it.
5. You Can Use Settlement Money for Whatever You Wish
Plaintiffs get to structure their settlement payments any way they want. It all depends on your financial goals.
For instance, you can take a large initial payment to replace your car or pay all your due bills. Or you can choose to give it all away to charity. For some people, structured settlements are meant to replace future income.
6. Altering the Contract Is Difficult
After you’ve finalized the terms of the structured settlement contract, there’s hardly a thing you can do to alter them. Renegotiating the terms to meet your immediate needs or to suit overall economic changes isn’t allowed.
That’s why it’s so important to take the time to consider what works for you before signing the contract. If possible, work with a financial expert to come up with a settlement structure that suits you in the long-term.
Besides a financial advisor, you may want to hire an attorney to help you negotiate terms that work best for you.
7. Payments Are Guaranteed
The structure settlement company that issued the annuity guarantees payments. But any company can still become insolvent. In such an event, your state’s insurance guaranty association protects you from losing your payments.
8. Other Forms of Aid Stay Unaffected
The vast majority of Americans who receive settlements for their personal injuries are still eligible for other benefits offered by the government. For instance, you can still receive Medicaid and Social Security Disability benefits while still receiving structured settlement payments.
Choose the Right Settlement Option for You
The choice between receiving a lump sum amount or structured settlements after winning your personal injury case can be a difficult one. Once you get the facts regarding the two options, it becomes clearer why most people opt for structured settlements. This payment option guarantees more financial security compared to receiving a lump sum, among other perks.
Would you like to learn more about structured settlements? Please keep visiting our blog.