"Structured Settlements Explained"

Why is a structured settlement beneficial?

1. In many cases, the settlement can take the place of regular income. In the event that injury precludes the plaintiff from regular work, the structured settlement can act like a paycheck, providing income to the individual while they are unable to work. A lump sum settlement, if not managed properly can be used up before employment of a meaningful nature can be found. Mis-management of lump sum settlements is a common problem. Structured settlements avoid this potential and provide a stream of income over a long period of time.

2. Also, for older people who have been awarded a personal injury amount, structured settlements are a good option because it insures income on a regular basis throughout the remainder of their life. Often, this puts less stress on the ability to cope financially with expenses associated with advancing age.

3. There is also a major tax benefit. Under a current law that was passed approximately 20 years ago, specifically to encourage the use of structured settlements, the payments are free from federal and state taxes.

4. For insurance companies (usually the payer of settlements) there is the advantage that it costs them less to make payments. For example, $2 million paid out over time is less expensive than a $2 million lump sum payment.

5. When considering alternatives to structured settlements, which usually involve lump sum payments, be careful. Often times, insurance companies pay the lump sum only after deducting expenses and interest. If you choose a lump sum, make sure that you are not signing away a large amount of your money. In fact, a financial institution that has ‘purchased’ the settlement contract usually makes the lump sum payment. This institution then accepts the payments and in turn pays the plaintiff the lump sum payment. These institutions are clearly in the business to make money so it is not hard to realize that sticking with the original payments and not involving another party will usually result in more money for the individual, albeit over a longer period of time.

These settlements are most common in higher amount settlements. Approximately 30% of claims involving amounts higher than $1 million end in structured settlements.

A structured settlement should always be administered by parties, which have a lot of experience in these types of arrangements. Often times it might be an insurance company or third parties who specialize in structured settlements.

When getting legal advice about structured settlements, make sure and ask your attorney about community property laws. If you live in a community property state, personal injury settlements can be marital property. It is important that the person doing the planning takes these and any other applicable laws into account.

This article is not legal advice, simply information, which may help. Always make a list of questions and make sure you are completely informed before making any decisions.

About the Author

Paula Montgomery is a freelance writer who contributes articles to Represented

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