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Structured vs. Lump-Sum Personal Injury Settlements

Choosing the proper settlement after you suffer an injury is an important step. There are two primary options that victims of personal injuries may select: structured settlements and lump-sum settlements.

At The Lanier Law Firm, we want you to understand your options, including the pros and cons of each kind of settlement and how to know which one is right for you.

What is the difference between structured settlements vs. lump-sum payments?

A structured settlement has flexible payout terms. Instead of receiving all the money in one large lump sum, adjusting the settlement to set up payments over time is possible. A structured settlement tends to pay out more than a lump-sum payment because there is time for it to earn interest. The alternative, a lump-sum payment, is a one-time payment of your financial award.

two sets of hands over paperwork - lawyer showing client where to sign

What are the terms of a structured settlement?

The nice thing about a structured settlement is that the terms are flexible. You, your personal injury attorney and the defendant’s insurance company will work together to negotiate the terms of your settlement.

Some structured settlements earn interest, according to Forbes. As a result, it’s possible that you could receive more than the value of the initial settlement when paid out over time.

Pros and Cons of Structured Settlements

There are both benefits and disadvantages to accepting a structured settlement.

Structured settlements are helpful because you:

  • Reduce the risk of spending down the money too quickly
  • Know that you’ll receive income on a specific schedule for a specified amount of time
  • May increase the value of the settlement because of interest
  • Won’t have to deal with friends or family asking to borrow money since you can minimize how much you receive at one time

These are all excellent arguments for accepting a structured settlement. Structured settlements do have downsides, too, for some people.

Some downsides might include:

  • Not being able to repay any outstanding bills right away
  • Not having control over how the settlement is managed
  • Being unable to change the settlement if your circumstances change

It’s important to consider whether you will be able to return to work, have outstanding debts and other factors, such as how you support any dependents, when deciding if a structured settlement will pay enough for you to handle your expenses.

What is a lump-sum personal injury settlement?

A lump-sum personal injury settlement is paid to you in one payment. A lump sum provides you with the total value of the settlement all at once, so you can decide how to invest it or how you’d like to use it at once. You don’t have any delays in receiving the funds, but you won’t receive further payments in the future.

Pros and Cons of Lump-Sum Settlements

There are pros and cons to accepting lump-sum settlements. Depending on your circumstances, one may outweigh the other.

The pros of accepting a lump-sum settlement include taking advantage of liquidity and being able to choose how you spend your money all at once. With a lump-sum payout, you get all the money you need up front, so you don’t have to wait to start paying down debts or balance your finances.

If you accept a lump-sum payout, your settlement will most likely be tax-free, but you may be taxed on any investments you make with the money. Additionally, Section 104(a)(2) of the Internal Revenue Code states that any punitive damages paid may be taxed, which is something to keep in mind.

You won’t benefit from interest on a lump-sum payout, so what you receive in that payment will be the total sum. You can reinvest it, but what you receive will be the total of the award in full with no future payments.

Which settlement is right for you?

When considering a structured settlement versus a lump-sum personal injury settlement, the right choice for you will depend on factors such as:

  • The total value of the settlement
  • The kind of medical care you need and if it will be necessary in the future
  • Your current bills and the need for more money now rather than later
  • Tax benefits or disadvantages to accepting a settlement offer in a lump sum or structured manner
  • If you can return to work in the future

There may be more flexibility with a lump-sum payment. Since you receive it all at once, you can invest that money in any way you’d like. You may choose to pay off all your debts, or you could invest the money and pay down medical debt or other bills over time, allowing the capital to grow.

Alternatively, a structured settlement pays out over time, so you never have to worry about spending too much all at once. A structured settlement broker can structure the payout so that you know that your current and future needs will be met.

In some cases, you may ask for a larger lump-sum payment with a structured settlement for the remaining money. For example, if you are awarded $500,000, you may ask for the first payout to be $150,000 and split the remaining $350,000 into structured payments. Choosing to split the award into a larger payment with smaller structured payments may help you get initial bills and expenses covered while also protecting your award and allowing it to grow in an annuity in the future.

Learn More with The Lanier Law Firm

Before you choose the kind of settlement you want, you have to consider your tax obligations, financial management skills, expenses and spending habits. Failing to consider the way you live your life and the expenses you’ll need to cover could result in choosing the wrong type of settlement agreement for your circumstances.

At The Lanier Law Firm, we focus on helping victims of personal injuries understand their rights. Whether you’re considering a lump-sum or structured settlement, we can help you learn more about your rights and how this compensation may affect you. Contact us for more information.



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