Structured Settlement or Lump Sum: Which is Better After a Personal Injury?

Structured vs. Lump Sum Settlements Following a Personal Injury

A personal injury settlement can be necessary to compensating a victim for financial burdens caused by an injury. Each personal injury claim differs based on the severity of the injury and the required compensation for the damages. For this reason, personal injury settlements can be disbursed as a lump sum or structured settlement to be paid periodically. When a person wins a personal injury award, they may have the option to decide which settlement they would like to receive.

It is important to choose a settlement that is best fit for your needs and situation. It can be hard to make clear and objective decisions when directly involved, so it is advised to consult with a personal injury lawyer. They can review your situation and help you decide whether a lump sum or structured settlement will be best.

 

Lump Sum vs. Structured Settlement

A lump sum settlement is a one-time payment made in whole. Lump sums are commonly preferred in minor to moderate claims that involve minimal damages and compensation. If the settlement award is fairly large, this may not be the best option.

If a victim suffers severe injuries and damages, especially ones that will require a long recovery, a settlement award is likely to compensate accordingly. In such cases, receiving a lump sum can be overwhelming and impractical. A structured settlement disburses the payment periodically, which is ideal for long-term medical costs or even just budgeting. In such case, you are still able to receive a lump sum of the amount at the time of the settlement.

 

Advantages of Structured Settlements

 

Flexibility

A structured settlement is not confined to strict periodic payments, but instead offers you flexible payment options. Typically, in a structured settlement, you have the option to receive an initial lump sum followed by a payment plan of your choice. This means you are able to immediately recover a sum of money that may be needed to pay off medical bills or other outstanding expenses. With the remaining balance, you have the ability to create a payment plan beneficial to your situation. This allows for a planned distribution of finances for future expenses. You may also have the ability to schedule the distribution of another large sum of money in the future.

Although this flexibility has major advantages, everything must be planned and decided before the settlement is signed. One a settlement is legally agreed on, it is finalized and cannot be changed.

 

Money Management

Structured settlements come with a number of benefits, including the ability to better manage your settlement award. Since lump sums come in one payment, it can be hard to manage the way in which you save, spend and distribute such a large amount of money. A structured settlement allows you to manage the amount of money you can receive and spend over a period of time, which ensures that you will have money when it’s needed.

 

Tax Savings

Personal injury settlements are always tax free, however, once you invest the award, any interest or dividends accrued are taxable. Structured settlements are usually paid as annuity which are tax-deferred. Since this money will not be in your possession all at once, it will not accrue taxable interest. Lump sum settlements are a little different. Since you receive all of the money at once, the money is likely to be invested in a greater amount and for a longer period, which will accrue more taxable interest. Overall, you will probably end up paying significantly less in taxes with a structured settlement.

 

 

The way in which you handle your settlement can affect the rest of your life, so it’s important to thoroughly consider all of your options before making any decisions. An experienced attorney such as the Brain Injury Lawyer Phoenix, AZ locals trust can help you choose a settlement and payment strategy best fit for you situation.

Kamper Estrada Attorneys at LawThanks to authors at Kamper Estrada LLP for their insight into Personal Injury Law.