What is a Structured Settlement?
A structured settlement is a financial tool that allows an injury victim to receive money over time in the form of regular payments instead of in one lump sum. When you settle your injury or death claim, an annuity is purchased which provides scheduled payments to help meet future needs such as medical care, college tuition, ongoing expenses, mortgage payments, etc.
What are the Benefits of a Structured Settlement?
Structured settlements have many benefits. First, the payments are guaranteed because they are funded through an annuity. In contrast, if the money is received in a lump settlement and invested, it could be reduced or lost depending upon the market’s performance. In addition, poor financial decisions can rapidly consume a lump sum settlement.
Second, you select how the money is paid out. For example, if your injuries have left you or a family member wheel-chair bound and you need to make some immediate modifications to your home or need to purchase a wheelchair van, you can choose to receive some of the money immediately and then take payments on a monthly, quarterly or yearly basis. Or, you can receive the money when you reach certain ages. You can choose for the payments to be level or increase over time or some combination of all of these. Simply put, you choose the payout that will work best for you and your needs.
Structured settlements also have favorable tax implications. Let’s assume you are injured in a motorcycle wreck and you receive a $900,000 settlement. The $900,000 is tax-free. But if you invest it, any income you derive is taxable. In contrast, payments received from a structured settlement are tax-free.
What are the Disadvantages of a Structured Settlement?
When you agree to a structured settlement, you are entering into a contract and the terms are fixed so you will not have immediate access to your money. Instead, the money will be paid to you as you selected when you signed the contract.
Second, the rate of return you earn using a structured settlement might be less than what it would earn if invested. But, as mentioned above, in a structured settlement, your funds are not subject to the whims and volatility of the market.
Finally, although rare, the issuer of your annuity can go broke leaving you as general creditor in any bankruptcy or insolvency proceedings. For this reason, annuities should only be purchased from high-rated companies.
Who Qualifies for a Structured Settlement?
If you have been injured in an accident or a loved one has been killed in an accident, a structured settlement might be right for you. Structured settlements can help pay long-term medical expenses, help care for a person with mental or physical disabilities who is no longer able to work or care for themselves or help support a surviving spouse or child by replacing lost income, funding a college education, etc.
At the Law Offices of John Day, our award-winning lawyers have significant experience in structured settlements and we help our clients decide if a structured settlement is right for them and their circumstances.
Can I Get Out of a Structured Settlement?
Once your settlement money is used to purchase the annuity, you can’t change your mind and go back to the original lump sum. However, you can sell your annuity. In fact, you may have seen the ads on late night TV where companies seek to buy out your structured settlement. Typically, the companies who offer this service buy your annuity at a fraction of its true value. And they often do so with predatory tactics as outlined in this Washington Post article .
To try and protect injury victims from unethical companies seeking to purchase their annuities, state law requires certain disclosures and an order of approval from a court before a structured settlement can be sold and transferred. One thing is for sure: selling your annuity is almost never a good idea.
We are Here If You Need Us .
If you would like to talk to one of our top-rated injury attorneys about your accident or a structured settlement, please give us a call at 615-742-4880 (Nashville) or 615-867-9900 (Murfreesboro) or866-812-8787 (toll-free). We handle all accident cases on a contingency basis. We have recovered millions of dollars for our satisfied clients and we are here to help you too.