When faced with a personal injury lawsuit, you may be presented with the option of taking a lump sum or a structured settlement. It is important to understand the differences between the two and how each form of payment will affect your financial goals. A lump sum payment is when, at the end of settlement negotiations, the defendant or his insurer issues a check to the plaintiff for an agreed amount. On the other hand, a structured settlement involves a program of income tax-free payments received in installments.
An example of this would be every month for 20 years. A structured settlement offers many benefits that a lump sum cannot. For starters, both settlement income and any revenue growth within the structured settlement are 100% income tax free. Payments are guaranteed, as is the rate of return.
That means that, even if the market collapses, structured settlement payments remain constant. There are no overhead charges and structured settlement plans are flexible in design, with monthly, semi-annual or annual payment options. For those who want a series of larger lump sums to pay for future expenses, such as college or buying a home, larger payments can be included in the schedule. Negotiating a fair settlement for your injury accident means negotiating the details of how you receive your compensation.
If you are given the option to take your compensation as a lump sum or a structured settlement, consider the key differences and how each form of payment will affect your financial goals. The main difference between lump sums and structured settlements is that a lump sum payment gives you access to all of your money at once, while a structured settlement involves receiving payments over an extended period of time. Structured settlements don't offer the benefit of having the full settlement amount available to you, and you won't have the opportunity to invest the money at your own discretion, but a qualified structured settlement broker can structure the qualifying financing asset in most cases, an annuity for meet your present and future needs, as well as the needs of your family. Structured settlements involve the defendant or his insurance company paying the settlement amount to a fund.
Structured settlement contracts specify start and end dates, payment frequency, distribution amounts, and death benefits. Structured settlements can also be designed to increase payments over the years, starting relatively low and ending at higher amounts. There are two good reasons to do a structured settlement: it ensures that you won't spend the money too quickly and it offers many benefits that a lump sum cannot. If you are concerned about mismanaging a lump sum or prefer the security of regular, long-term payments, you can opt for a structured settlement and set the terms to deliver these benefits and the flexibility to achieve your financial goals.