Why Choose Structured Settlements Over Lump Sum? | For Different

Why Choose Structured Settlements Over Lump Sum?


May 22

In a personal injury lawsuit, it is very common, if not expected, that the plaintiff win the case when the injury is caused by the defendant?s negligence or purposeful actions. In such a case, a financial settlement is warranted and the plaintiff receives it according to his or her terms, whether to accept a lump sum or a structured settlement.

What is a structured settlement?

A structured settlement is the agreement that the defendant makes periodic payments to the claimant over a certain period of time or over the claimant?s lifetime, depending on the amount involved. For many, structured payments are more practical because they are free of state and federal taxes, such that any payment made under the structured settlement is not taxed by the government- ever.

Another advantage of choosing structured settlements is the financial stability it brings the claimant, particularly after a permanent and debilitating injury. Because the claimant may not be able to get a job and earn an income after the accident, he or she will be better off with a steady stream of income from a structured settlement.

Usually, the defendant person or organization will purchase an annuity to ensure that every payment is made on schedule and within the terms specified in the settlement agreement.

Why not choose to receive a lump sum?

A lump sum is a certain amount of money awarded by the court to the plaintiff who was injured, ill or lost a loved one because of the irresponsible acts of a person or organization. The money is given all at once to the claimant or over a few instalments specified in the agreement.

Although this may be an attractive option for many, practical considerations will deem it a less sustainable option. I say it is less sustainable, because just like any other person, when you receive a significant amount at once, the tendency to overspend is just overwhelming.

While it may be your intention to invest your money on something profitable, or spend it wisely over time to provide for your lone term future, the likelihood that it will be realized is very little. Unless you are 100% certain that you will be able to manage the money effectively, a structured settlement is the better choice.

When choosing between structured settlements and a lump sum, your decision depends entirely on your long-term needs. Always consider the pros and cons of each option and discuss it with your lawyer, family or a reliable broker to ensure that you make an informed decision.

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