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Structured Settlement in Personal Injury Lawsuits: Should You Take It?

Individuals who win or settle a personal injury lawsuit can receive their compensation in either one of two ways. They can choose a lump sum payment or opt for a structured settlement. There are many reasons why many plaintiffs choose structured settlement over lump sum payment. Before you make that decision, it is important to learn more about this form of payment for personal injury cases from a qualified and experienced P.I. lawyer.

How it Works

In a structured settlement, the plaintiff receives a series of payments from the defendant or the defendant’s insurer. These payments occur over a predetermined period of time, often lasting several years.

Let us say you won $500,000 for your personal injury claim. The structured settlement may require the other party to pay you $50,000 every year for the next 10 years. To be more specific, the settlement may specify the exact month and date that the payment should be made. For instance, it can state that the $50,000 be paid every June 1st for the next 10 years.

The thing about structured settlement is that you can create a settlement schedule that fits your needs. You have several options to go about this.

First, you can ask for a large initial payment, similar to a down payment when buying a house or a new car. Having a larger initial amount of settlement money can help you pay off debts, overdue bills, or purchase items that you deem necessary. The remainder of the settlement can serve as a substitute for any loss in your income potential.

Second, you can schedule a fixed annual settlement payment, but with provisions for additional amounts. These additional amounts will allow for the payment of extraordinary expenses such as your child’s college tuition.

Third, it is also possible to design the structured settlement in such a way that it increases in payment amount over time. This is advantageous to the defendant as he will not have to deal with an initial large payment. The last payment will have the highest monetary value.

Fourth, if you don’t like an increasing value of payments over time, you can do the opposite. You can structure the settlement so that the initial payment will be higher than the last payment.

Fifth, if you don’t like to get the settlement yet, this is also possible. Some plaintiffs opt to delay the payment of the settlement. They often wait until they reach the age of retirement.


Things to Consider Before Choosing Structured Settlement over Lump-Sum Payment

Before you decide to choose a structured settlement over lump sum payment, it is best that you consider the following issues. It often helps to discuss these issues with your financial adviser or attorney.


Tax Obligation

The tax status of your compensation is dependent on the nature of the damages. As such, it can be either taxable or tax-free. The problem is that there are many provisions of the law that are complicated to the average person. It is advisable to seek the expert opinion of a tax professional or a tax attorney.


Money Goals

One of the things you need to consider is how you intend to use the money. This will have an impact on how you structure the settlement. If you need to pay off a large debt, then you may want to have a large initial payment instead of opting for fixed periodic payments.


Personal Financial Management Skills 

People who opt for a lump sum payment often end up on the losing end. This is because they do not have the correct skills to manage such a large amount of money. If you would like to avoid such a loophole, then a structured settlement is best for you.


Predisposition to Splurge

Akin to a person not having the correct financial management skills, one’s tendency to splurge can also be disastrous. This often occurs in plaintiffs who choose the lump sum payment method. Since they have a large sum of money on hand, they cannot resist the urge to spend. If you’re like these individuals, you’re better off with a structured settlement.


Other Persons around You

One last consideration is the people around you. Family and friends may come to you for “financial help” should they learn that you got a large sum of money in your personal injury case. If you go for a structured settlement, you can avoid such inconveniences. Structured settlement offers many advantages over lump sum payments. If you’re still undecided if this is the right avenue for you, having an experienced lawyer can help you iron out the kinks.


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