When someone injures you or plays a part in an action leading to your injury, you have the right to file a personal injury claim against them.
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Upon dragging the offender to a court of law, the jury will charge them a certain sum – known as settlement – to cover for the losses and pain they've caused you.
Conventionally, the offender pays this money as a one-time lump payment into the plaintiff's or plaintiff's attorney account.
However, in some special cases, the money is paid in a structured settlement format over a given period. That is, as a periodic monthly or seasonal payment.
In this post, we want to examine whether or not it makes sense for a plaintiff to accept this mode of payment. That is, "should a plaintiff accept a structured payment for their personal injury claim?"
And the answer is: It Depends.
Should you accept structured payment for your personal injury claim?
Yes, accept a structured settlement if the sum you're receiving is large (something around $150,000 or more).
However, when dealing with small or medium-sized settlements – less than $150,000 – you should opt for a one-time lump payment instead.
There are two reasons why it makes sense to accept structured settlements for large sums.
Firstly because it prevents you from spending the money lavishly. When people get their hands on large sums, they sometimes end up blowing it on irrelevancies. And in the end, they are left with nothing. Accepting your personal injury settlements in a structured format prevents you from doing this.
Secondly, accepting structured settlements saves you money on taxes. If you accept a lump sum, you'll likely want to save it in a bank or invest it in something, which will cause you to pay taxes over any resulting interest or dividends. But if you accept structured payments, you'll most likely always have to use each payment for a specific purpose.
What if the defendant is pressuring you to accept a structured settlement?
In our discussions so far, we've only emphasized scenarios where the plaintiff decides how they want to accept their settlement.
In reality, it's not uncommon to see a defendant or their insurer pressuring a plaintiff to accept a structured settlement. Most of the time, insurers do this because their client doesn't have the financial resources to cover a lump payment for the entire amount owed to the plaintiff.
Nevertheless, if the settlement owed is less than $150,000, you should refuse their request and not give in to their pressure. Tell the defendant to make a lump sum payment, or else the case won't leave the court.
How does the structured settlement work?
The best way to imagine the structured settlement system is to liken it to a traditional annuity system, wherein payments are broken down into a series of periodic payments.
How the process works is that part of the settlement is paid as a lump sum to the plaintiff. And the remaining part is sent to a different insurer – often a life insurance company that specializes in handling structured settlements – who then structures it in the form of an annuity.
Note: if an emergency need ever arises in the future, and you need funds urgently, you can sell your annuity (or at least a portion of it) – more like you're selling a portion of the payments you're supposed to receive in the future.
When choosing an insurance company to handle the annuity payments, caution needs to be exercised because if the insurer goes out of business, so goes your annuity.
The beautiful thing about structured settlements is that you have the liberty to decide how you want your payment to be structured.
Below are some of the terms of the agreement you can adjust as you see fit:
- The number of years of months you want the annuity to run for
- Annuity reception frequency. That is, how do you want to be receiving the structured payments? Monthly, yearly, quarterly, etc.
- Whether you want the annuity to terminate before you die, immediately you die, or whether you want the payments to continue to your heirs.
