Tuley Law/ Car Accidents/ An Overview Of Structured Settlements
If you or a loved one was hurt at work due to medical malpractice or from another personal injury, you may be entitled to a settlement to cover medical bills, lost income, and more. If the settlement amount is small, receiving a one-time payment (lump sum) might be a better option. However, getting the funds distributed gradually over time may be a good idea if the settlement is larger. This article covers the pros and cons of structured settlements, and how they are different from a lump sum settlement.
First, let’s begin by defining what a structured settlement means.
A structured settlement is a negotiated arrangement of consistent, tax-free payments awarded to injured victims or their families after an accident. The purpose of the payments is to cover the cost of damages and injuries spread out over time. It offers the plaintiff long-term financial security rather than a lump-sum payout. Here’s how a structured settlement works:
Lump sum settlements are the default standard for civil settlements. They often make the most sense for small and medium-sized settlements. As for settlements above $150,000, structured settlements can be a better option thanks to tax-free advantages and the allocation of funds over time. Receiving the funds gradually over time prevents awardees from spending their settlement funds too quickly. The awardee may also receive more money in the long run since the funds grow over time through the annuity policy.
While personal injury settlements are usually not taxable, you must pay taxes on the interest and dividends from any investments made with lump sum settlement funds. Structured settlements, on the other hand, provide less money in the bank all at once, but allow for investment of the funds without incurring tax liability in the future. Note that it’s a better time for a structured settlement when interest rates are higher.
Here’s a quick summary of the advantages and disadvantages to consider when choosing between a structured settlement vs. a lump sum settlement.
Advantages of a structured settlement:
Disadvantages of a structured settlement:
Advantages of a lump-sum:
Disadvantages of a lump-sum:
Before making any decisions about a settlement, discussing your options with an Evansville personal injury lawyer can help you better understand your option’s advantages and tax implications.
Recommended reading: Types of Personal Injury Compensations
How much is paid out for a structured settlement differs from the lump sum payment amount. Because it is delivered over time, it is considered a “future income stream” and is calculated by its present-day value. How much is paid in by the defendant to the annuity policy will be less than the lifetime value because of the interest that grows on the money over time.
Recommended reading: Indiana personal injury damage caps
To fully calculate the value of a settlement, consult a personal injury attorney about your unique case.
Whether a victim receives a structured settlement or lump sum is a decision made and agreed upon by the victim. While the settlement amount impacts whether a structured settlement or lump sum makes the most sense, the decision is ultimately up to the victim to decide which they would prefer.
Structured settlements do not count as income on your taxes.
No, structured settlements are not taxable.
An individual may be entitled to a structured settlement payout during a workers’ compensation, personal injury, or wrongful death lawsuit.
Structured settlements are most commonly set up in cases of severe permanent injuries, often called catastrophic injuries, the details of which are defined during a workers’ compensation, personal injury, or wrongful death lawsuit.
A workers comp structured settlement is a settlement set up from worker’s compensation after a serious injury occurs at work.
Life after injury or loss is difficult enough. There’s no need to navigate the settlement process without help from a personal injury expert. The attorneys at Tuley Law Office have the experience to guide you through the settlement process and help you decide whether a lump sum or structured settlement is the best choice. We’ll fight for you every step of the way to get you the maximum settlement you deserve. Call our Evansville personal injury lawyers for your free consultation today!