Structured Settlement Explained
Up until a couple of decades ago a person who won a lawsuit
as a direct result of a worker’s compensation claim,
wrongful death or accident had to accept their compensation
in a lump sum payment. It was assumed that the sum would be
invested, with the beneficiary living off the proceeds for
the duration of the recovery.
In some situations this kind of settlement works great while
in other cases, the results can be disastrous.
Structured settlement offers a different pay out. It’s an
alternative to a situation where a lump sum payout would be
deemed undesirable. With a structured settlement there is an
agreement between both parities that the payment will be
made over time instead of in one lump sum.
It’s challenging enough for a person who has been through
the trauma of an accident or illness to be forced to adjust
to their new lifestyle without having to deal with worries
over whether or not they have invested their settlement
wisely.
Imagine you’ve been active all your life and then one day
you find yourself confined to a wheelchair and now aside
from coping with limited mobility you have thousands of
dollars in assets to manage. Even most healthy people would
find investing such a financial windfall somewhat
overwhelming.
However, with a structured settlement the need to have to
hire some to handle your investments and all the tax
implications, is eliminated. Not only would it be costly but
how would you know for sure if the person you hired was
trustworthy? And what if that person was proven to be
incompetent, where would you be? This is your life and your
financial nest egg you’re dealing with.
With a structured settlement the two parties come to an
agreement and the party responsible for the payment
purchases an annuity. This annuity is often bought through
an insurance company.
The biggest advantage of a structured settlement is that the
injured party receives a steady income over several years or
in some cases, over the course of their lifetime.
Structured settlement payments are regulated for inflation.
In other words, the sum of all the payments distributed as
part of the structured settlement would be greater than if
the amount was paid in the form of a lump sum.
Since the structured settlement payments were purchased as
an annuity up front, the party responsible for paying
actually owes less than the sum of the payments.
Ultimately, a structured settlement is a win-win for both
parties. The injured party becomes the recipient of a steady
stream of income and the party who is responsible for paying
doesn’t have to concern themselves with monthly or annual
payments.
That said, there are some situations like in the case of
long term injury settlement where a structured settlement
may not be the most ideal payment option.
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