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.
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.
It’s important to understand the benefits and drawbacks of lump-sum payments
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.
The U.S. Congress adopted a law in 1982 — the Periodic Payments Settlement Act — encouraging structured settlements.
That is, periodic damage payments were exempted under the law from federal and state income-tax requirements.
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.
Consumers should be aware of the upsides and downsides of structured settlement payments before making a funding decision.
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:
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.
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.
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.