What is a Structured Settlement?
A structured settlement is a settlement that is paid out to a plaintiff over time, rather than in one lump sum. Although most plaintiffs prefer lump sum settlements, there are times when structured settlements can be advantageous.
Advantages of a Lump Sum Settlement
Lump sum settlements are the typical way personal injury settlements are finalized. In a lump sum settlement, the plaintiff receives a check for the full settlement amount. Most small to mid-sized cases involve lump sum settlements.
The obvious advantage to a lump sum settlement is you get all the money at once. Plaintiffs often incurs bills and other financial debt after serious injuries. Lump sum settlements can be applied to any outstanding debt, and get a plaintiff immediately back on their feet from a financial perspective. Lump sum settlements also provide a measure of conclusion and finality to a case as the plaintiff receives all compensation associated with the lawsuit.
Advantages of a Structured Settlement
Under certain circumstances, structured settlements may be advantageous to plaintiffs. For example, structured settlements can be a good idea in cases involving young plaintiffs who receive large settlements, whose future medical care will require expenditure of significant amounts of money. In these cases, structured settlements can be advantageous for the following reasons:
- A structured settlement ensures the settlement funds cannot be spent all at once. It is typical for a plaintiff to spend their lump sum settlements very fast, only to have nothing left after a few years. A structured settlement can ensure that there are settlement funds available to a plaintiff in the future which can be used to pay ongoing medical costs and lost wages.
- A structured settlement can also save money on taxes. While personal injury settlement funds are typically tax exempt, certain investments made with settlement funds are not. Thus, when a settlement is structured, and the structured payments are directly applied to pay bills and other expenses, the settlement proceeds are not taxed.
How Does a Structured Settlement Work?
If a plaintiff agrees to a structured settlement, the parties will often utilize the services of a life insurance company or other financial company specializing in annuities and long-term planning. Care should be taken when choosing an insurance company to ensure it is reputable and will be in business in the years to come.
The terms of a structured settlement can be negotiated between the plaintiff and defendant. Terms may include:
- The timeline of the settlement
- The frequency of payments
- The amount of the payments
- In the event of death, to whom payments should be made
Calculating the Amount of a Structured Settlement
Structured settlements can be a good option for some plaintiffs as they provide a future income stream. It is interesting to note, however, that under these long term payout agreements, the insurer actually winds up paying less than the full value of the settlement, because interest is typically not provided on the principal settlement amount. For example, if a plaintiff is paid $1,000,000 over the course of 20 years under a structured settlement, the actual value of the settlement ends up being less than the value of $1,000,000 over the course of 20 years with accrued interest.
Consult With an Attorney
An experienced personal injury attorney can help you prosecute your claim, obtain a settlement that is fair and just, and finalize the settlement in a manner that takes your best interests into account.