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Tags: finance, structured settlements, structured versus lump sum settlement payment
 So you got into an accident, it wasn’t your fault, you sued the other party, and you won a compensation agreement. For the win, you may be offered a choice of prearranged compensation agreement options. Traditionally, the other party may offer you a lump sum settlement payment as a one time discharge of all responsibilities.
Or they can offer you a structured settlement payment which makes a series of regular disbursements to you over a period of time until your agreement is fulfilled. So in the structured versus lump sum settlement payment game, which one should you choose? Obviously, your own preferences and personal situation will come into play in your decision of which one to take, so it is worth considering the advantages and disadvantages of opting for either one.
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Most minor to moderate injury compensation cases are usually settled with a lump sum settlement payment to the aggrieved party. However, the more serious cases, especially those that would require future medical treatments, or those resulting in permanent disability, are often settled with structured settlement payments. This option offers regular cash disbursements to you via a long term annuity which would cover your damages and medical expenses.
For many it has numerous advantages over the lump sum option. One of the greatest advantages of a structured settlement payment is that you would be receiving a steady stream of income for an agreed upon length of time. The length could vary from a few short years to as long as your lifetime.
It basically depends on the severity of your injury, the amount involved and the particular agreement taken. The structured compensation option are free of State and Federal taxes. They are funded through the purchase of an annuity which then earns the interest used for the continued disbursement to you. This is not the case with a lump sum option, which you must invest yourself if you want to get a regular income—interests earned on this type of investments are taxable.
There are many different options available making it flexible. It is also a low risk way of investing your money and the receivables are predictable. Probably the biggest downside to a structured settlement payment is that once you’ve agreed to it there is no way to change it. You cannot decide that instead of periodic receivables, you want all the money now.
Nor can you change the schedule, the amount paid out, the frequency, the term, or anything else about the agreement. If you took the lump sum settlement payment instead of the structured one an advantage is the fact that you get your money at one go are then done with the whole process.
You can use this money in anyway you see fit like investing it in order to get a regular income—there are investments out there that have higher rates of return than the annuities used in the prearranged payment agreement. However, as stated earlier, any interests earned on these investments may be taxable.
If you were disabled in your accident you can use the lump sum towards buying the equipment and/or modifying your home to make your life as comfortable as possible. And if you plan to change careers, you could also use it to set yourself up in a business for yourself or have the money to live on while you look for another job.
The biggest disadvantage of a lump sum settlement payment is that it is so easy to spend it quickly since you feel that you have plenty of money at your disposal. Before you know it, the money is all gone. Think about your personal circumstances and preferences before you choose between a lump sum or structured settlement payment.
Also seek out professional advice on each option and their impact on you. Then make the decision to suit you both now and in the future.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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