When most car accident cases settle, the accident victim receives his settlement amount in a lump sum. However, in some circumstances, a person decides to be paid through a structured settlement. This is another of the important decisions you will need to make when your attorney negotiates a settlement of your claim with the negligent driver’s insurance company. Is a structured settlement the best option for you?
What Is a Structured Settlement?
A structured settlement is the payment of the compensation you receive over a period of time and is often used when the victim suffers a permanent serious injury. If you are considering a structured settlement, you can opt to receive the payments over a period of years or for the rest of your life. The insurance company will often fund a structured settlement by purchasing an annuity policy, which is an insurance policy that provides you with monthly or yearly income under the terms of the settlement.
Many of the terms of the structured settlement can be negotiated so that the payment schedule meets your financial needs. Here are a few options you may want to consider:
- Initial lump sum payment. If it has taken a long time to resolve your claim and you have had a loss of income, you may want an initial lump sum payment that is higher than the other payments you receive. You can use this money to catch up on bills, pay off your mortgage, purchase a new vehicle, or make a modification to your home needed due to your injury.
- Payment of additional future expenses. If you know you will have higher expenses in certain years, such as when your children go to college, you could structure your payments to receive higher payments during these years.
- Progressively increasing payments. Some people decide to accept lower payments in the beginning of the settlement and have the payments increase over time. This could be a good option if you have a spouse who is working. You could increase your payments later when your spouse retires and you will need additional income.
- Progressively decreasing payments. Some structured settlements start out with larger payments that decrease over time. You may choose this arrangement if you have larger expenses early on or if you anticipate returning to working after receiving vocational training.
What Are the Pros and Cons of Structured Settlements?
Whether a structured settlement will be right for you will depend on many factors. Like any decision, you will need to weigh the pros and cons of each option. Here are some of the benefits of a structured settlement:
- Tax benefits. While your car accident settlement will most likely not be taxable, any punitive damage award and interest you receive from the award or through investing the proceeds could be taxable. Spreading the payments over time could reduce your tax liability.
- Certainty of payments. A structured settlement gives you the certainty of payments over time and higher payments when you have higher expenses. This can help you with planning for your future needs.
- Not spending the money too fast. Sadly, many accident victims do not plan wisely and spend too much of a lump sum settlement soon after they receive it.
For many people, there are also drawbacks to accepting a structured settlement. Reasons you may decide it is not right for you include:
- Loss of flexibility. You could feel hampered by the lack of flexibility with the fixed payments if you have unanticipated expenses in the future that you could use the lump sum payment for.
- Not a large enough settlement. When your case is worth less money and you have immediate needs for the settlement proceeds, accepting your payment in a structured settlement may not make sense.
- Investing options. You may feel that taking a lump sum payment and investing it will give you a better overall return on your money than if you accepted payments over time through an annuity.
An experienced car accident attorney can help you decide whether a lump sum payment or a structured settlement is best for you. Start an online chat or call us today at 888-795-6261 to schedule your free case evaluation.