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Personal Injury Payouts: Comparing Structured Settlements vs. Lump Sum

Trying to decide between a structured settlement and lump sum agreement?

When you finally make it to the end of your personal injury case and win, it seems like the hard part is over. But now you have to figure out the best way to receive all that money. There are pros and cons to each decision, which makes it that much harder to figure out what will be best for your situation. 

In this guide, we break down everything you need to know when figuring out if structured settlements are the way to go. Or if you should take your money and run. Read on for some valuable advice!

Structured Settlements

When you opt for a structured settlement, you will receive your money in installments over time. This could be over the course of 20 years. 

The defendant is responsible for paying the money and may do so directly. Usually, the defendant will purchase annuities from a life insurance company, which are structured by state insurance officials. Others will be taken from the U.S. Treasury Securities.

Receiving your settlement money once a month in smaller installments will guarantee you have money for expenses for the long term. If you are worried about receiving a large amount of money and overspending, then structured settlements will provide a more manageable approach.

These types of settlements are most common with serious personal injury cases that entail prolonged treatment. They are also helpful for cases involving a minor including guardianship, along with workers compensation, wrongful death, and disabilities.

It’s important to note that these settlements are very flexible. Even if you are stretching out the payments over a long period of time or in the case of life annuities, your entire life. You can request the structured settlement to provide larger sums of money up front or even a year or two from now.

The issue is that once your sign on the dotted line, you can’t change your structured settlement. It’s basically set in stone.

Another risk is if the entity responsible for making your payments is no longer able to. There’s a possibility of not receiving the remaining balance you are due. You want to be sure the company who is going to pay you is highly rated.

Structured settlements are low risk but still involve some level of risk. 

Lump Sum Payments

A lump sum payment is when you receive all of your settlement at once. This is probably the easiest way to receive your money. You simply receive your payment for injury and the interaction is complete.

There are also situations when you can receive multiple lump sums over a short period of time. Either way, you have your money shortly after the settlement of your case. 

This can be beneficial because you have enough money to make any unexpected payments. You are also able to manage your own money and investments. 

Some of the negatives of receiving a lump sum payment are mainly for those who are not able to invest the money responsibly. For example, if you have a large sum of money in your account, you might be tempted or persuaded to spend it. It is also possible that investments will fall through.

Once you lose the money, there’s no way of getting it back. A lump sum payment isn’t for everyone, but it’s a fairly straightforward way of receiving your money.

Tax Exemption

Both structured settlements and lump-sum payments are protected from income tax by the federal and state laws. So you won’t have to give away a percentage of money from your settlement for income taxes. 

The structured settlements annuities and the Treasury securities, actually work to grow your money along with being completely tax-free. The lump sum is tax-free upfront. However, once you make investments using the lump sum money, you will be taxed on the interest. Over time, taking a structured settlement will actually result in more money for you.

What Will You Choose?

There are risks in either scenario, but it is important to meet with an attorney who can assist you with making this big decision. For smaller payouts, a lump sum is probably your best option. 

However, if you have a more severe case, then structured settlements might be your best options. Share your situation in the comments below!