A Structured Settlement Payment Vs. Lump Sum Payments
You’ve been in an accident and you’re entitled to a settlement.
Traditionally lump sum payments were the only way responsible
parties had to pay accident claims. Today, a structured
settlement payment opens up a whole new opportunity for injury
victims.
A structured settlement payment essentially offers the injured
party cash payments via a long-term annuity. This form of
compensation covers damages and medical expenses, and for many
victims it has numerous advantages over receiving a lump sum
payment.
One of the greatest advantages of a structured settlement payment
is that the injured party receives a steady income for an agreed
upon time frame. This length of time could be limited to a few
short years or could last the victim’s lifetime. It all depends
on the severity of the accident, the amount of dollars involved
and what the particular agreement is.
The circumstances of each case is different and as a result, a
structured settlement payment may not be preferred over a lump
sum payment in all cases.
A structured settlement payment is regulated for inflation. In
other words, the sum of all the payments distributed as part of
the settlement would be greater than if the amount was paid in
the form of a lump sum.
And because a structured settlement payment would come out of an
annuity that was purchased upfront, the party responsible for
paying would actually owe less than the sum of the payments.
Being tax free is another advantage to a structured settlement
payment. Due to a change to the Federal tax code in the early
1980’s any payments are free of both state and Federal taxes.
The purchased annuity earns the interest which in turn funds the
continued payments whereas in the case of a lump sum payment, the
injured party would have to invest the money themselves. The
disadvantage of a lump sum payment here would be that any
interest earned on such investments would be taxed.
For injury victims, a structured settlement payment is also less
overwhelming than coming into a lot of money and having to deal
with long lost relatives who have come out of the woodwork upon
hearing the settlement news.
When settlement money is received in smaller amounts, there are
far less worries about being taken advantage of by unscrupulous
relatives or people you may have entrusted to invest your money
on your behalf.
Overall, a structured settlement payment is simple and easy to
manage. You can count on the regular payments and instead of
worrying about your investments, you can focus on your recovery
or adjusting to any permanent changes in your lifestyle.
The downside however is that with a structured settlement payment
you don’t have the luxury of purchasing a new home or being able
to pay off expensive medical bills all in one shot. That said,
such a payment plan can balance things in your favour over the
long term.
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