If you sustained an injury because of another person’s negligence or carelessness, you might have decided to pursue a personal injury lawsuit. If this is the case, know that your case is likely to end in a settlement.
Settlements fall into one of two categories: structured and lump sum. With a lump sum settlement, you get the entirety of your award upfront. With a structured settlement, however, you receive your award in monthly installments over the course of several years or the rest of your life.
Pros of structured settlements
Per FindLaw, there are several benefits to accepting structured settlements over a lump sum payment. A few advantages are as follows:
- Guaranteed payments: When you accept a structured settlement, you have a guaranteed source of income for a predetermined amount of time. This may be beneficial if your injuries are minor or if they are so debilitating as to require long-term medical care.
- Flexible: With structured payments, you can tailor payments to cover specific expenses. Your state may also allow you to combine a lump sum payment with a structured settlement to meet immediate and then long-term expenses.
- Agreeable: Many parties who are far away in negotiations often feel as if they “won” when they agree to a structured payment schedule.
These are just a few of the top advantages of a structured settlement.
Drawbacks of a structured settlement
Structured settlements do come with a few drawbacks. For instance, some injured parties fear that negative economic conditions will affect the size of monthly payments. Though this is not the case, the lack of peace of mind may cause unnecessary stress. Additionally, the IRS may tax monthly payments, and you may end up paying more in taxes than had you received a lump sum. Finally, insurance companies often come out ahead with structured settlements, as annuities cost less than up-front payments.
A structured settlement does come with its pros and cons. Before you accept one, be sure to do your due diligence.