Structured Settlement vs Lump Sum

If you’ve been harmed by the actions of someone else or a corporation, you may bring a lawsuit seeking compensation. If the other party agrees to pay to settle your claim, there are a couple of different ways you may be paid. Those choices are either a structured settlement or a lump sum.

When you prevail in a lawsuit against someone or a company that has injured you, you may receive payment to compensate you for the harm.

That payment may come all at once, known as a lump sum. Or it may be spread out in installments that you receive for a period of years. That second option is known as a structured settlement.

Both forms of payment have benefits and disadvantages that you should weigh in determining how you would like to be paid.

Lump-Sum Meaning

When you settle a lawsuit, you may receive either a lump sum or a structured settlement.

A lump sum is the simplest way to receive damages. It is a single payment with all the money being received at once.

The one-time payment would satisfy the other party’s obligation in full. The settlement could also involve a set number of lump-sum payments.

Lump Sum Pros and Cons

It’s important to understand the benefits and drawbacks of lump-sum payments

Lump Sum Pros and Cons

  • You can spend the money however and whenever you’d like
  • You are better able to meet immediate and unexpected needs
  • Larger check enables you to manage your own investments

Cons

  • If you lose the money, you have no second chances
  • Your investments might not do well
  • You may be pressured to give the money away

Structured Settlement Meaning

The difference between lump sums and structured settlements is a structured-settlement payout takes place over an extended period of time. A structured settlement involves a schedule of income-tax-free payments received in installments. An example of this would be every month for 20 years.

Structured Settlement Law

The U.S. Congress adopted a law in 1982 — the Periodic Payments Settlement Act — encouraging structured settlements.

law books on desk
The law gave structured settlements the same tax advantages of lump-sum payment personal injury awards.

That is, periodic damage payments were exempted under the law from federal and state income-tax requirements.

Structured Settlement Funding

Structured settlements usually come in the form of annuities purchased by the defendant in a lawsuit from a life insurance company.

More than 500,000 injury victims have received structured settlement annuity payments since 1983. National Structured Settlements Trade Association

These annuities are regulated by state laws.

Structured settlements may also be funded through U.S. Treasury bonds or may be self-funded by the defendant, who takes responsibility for making all the payments.

Annuities that fund structured settlements are regulated by state insurance officials, as are structured settlement brokers. Most states have adopted Structured Settlement Protection Acts to regulate structured settlements.

Structured Settlement Pros and Cons

Consumers should be aware of the upsides and downsides of structured settlement payments before making a funding decision.

Pros

  • You are guaranteed to receive money to pay expenses over a long period of time
  • Ongoing support for long-term needs
  • You are protected from the consequences of bad investments
  • You have less pressure to give the money away

Cons

  • You have no access to the majority of the settlement
  • You may not be able to pay unexpected bills

Structured Settlement Cases

According to the National Structured Settlements Trade Association, Structured Settlements are more likely to be found in cases involving more serious personal injuries. The association says structured settlements are ideally suited for cases involving:

  • Disabilities
  • Guardianship that may involve minors or adults deemed incompetent
  • Workers compensation
  • Wrongful death cases the surviving family members need income
  • Severe injury, particularly with long-term medical care requirements, living expenses and family support

Structured Settlement Lump-Sum Hybrid

In some cases, the two forms of payment may be combined to meet the needs of the plaintiff. In these cases, the plaintiff may receive a large payment to meet immediate needs and pay bills, followed by a series of payments scheduled over time.

Turning Your Structured Settlement into a Lump Sum

If you have a structured settlement, you may find yourself in need of a larger amount of immediate cash than your settlement pays.

You may have unexpected bills. Or your life might change through a divorce or another expensive development.

home repairs
You may need to repair or purchase a home. You may need a new vehicle.

If this happens, you may wish to sell your structured settlement payments to a company that specializes in these purchases.

If that’s the case, our trusted partners may be able to help. Contact us, and we will explain the process to see if we can help.

10 Cited Research Articles

  1. National Structured Settlements Trade Association. (n.d.). What are Structured Settlements? Retrieved from http://www.nssta.com/structured-settlements
  2. Congress of the United States. Joint Committee on Taxation. (1982, December 22). Summary of The Period Payment Settlement Act of 1982. Retrieved from https://www.jct.gov/publications.html?func=startdown&id=2772
  3. House Ways and Means Subcommittee on Oversight. (1999, March18). Tax Treatment of Structured Settlement Arrangements. Retrieved from http://www.jct.gov/jct_html/x-15-99.htm
  4. Zacks. (n.d.). If I Have an Accident is the Insurance Settlement Paid in One Lump Sum? Retrieved from https://finance.zacks.com/accident-insurance-settlement-paid-one-lump-sum-8902.html
  5. Butner, S. (n.d.) Are Annuity Payments on Lawsuit Settlements Tax Free? Retrieved from https://pocketsense.com/annuity-payments-lawsuit-settlements-tax-free-9730.html
  6. National Structured Settlements Trade Association. (n.d.). Frequently Asked Questions. Retrieved from http://www.nssta.com/structured-settlements/faq
  7. TheLaw.com Dictionary. (n.d.). Lump Sum Contract. Retrieved from https://dictionary.thelaw.com/lump-sum-contract/
  8. National Structured Settlements Trade Association. (n.d.). Structured Settlement Annuities: Safe, secure and highly regulated. Retrieved from https://nssta.com/sites/default/files/library/2016/2016-10/StructuresAndAnnuitySecurity_0.pdf
  9. FindLaw. (n.d.). Structured Settlement: Pros and Cons. Retrieved from https://injury.findlaw.com/accident-injury-law/structured-settlements-pro-s-and-cons.html
  10. Justia Ask a Lawyer. (2018, January 18). Lump sum vs structured settlement in work comp claim? A few questions. Retrieved from https://answers.justia.com/question/2018/01/18/lump-sum-vs-structured-settlement-in-wor-377984
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