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Structured Settlements

By on Feb 16, 2016 in blog |

If you’ve been injured in an auto crash, you may be eligible for compensation in the form of a settlement. Settlements come in two types: lump sum and structured. A lump sum is a single payment to compensate you for all current injuries and future medical costs. A structured settlement is an annuity that pays out regular sums over several years or for the rest of your life.

Pros of Structured Settlements

Lump sums are tempting because you get to have all the money at once. Depending on the settlement, you could get thousands or even millions of dollars. However, lump sums may be risky because they’re difficult for many people to manage, so structured settlements are often the smarter option.auto crash

Structured settlements disburse regular payments, which is useful if you suffered a serious injury that will require constant medical attention (and bills). A structured settlement prevents you from spending, in, say, three years, money that was intended to last 30 years. Additionally, under a structured settlement your funds will be controlled by a financial manager, alleviating much of the stress of handling all that money.

Structured settlements also offer some tax benefits. Sometimes, but not always, lump-sum settlements can be treated as income, meaning that you have to report it on your tax returns. Structured settlements, on the other hand, are sometimes exempt from taxation.

Cons of Structured Settlements

The biggest downside of these settlements is that you have to surrender control of the funds to get the most favorable tax treatment. Essentially you have to trust the financial manager to operate your funds responsibly.

Moreover, annuity payments are generally locked. So if the economy takes a bad turn, then your payments may be insufficient to cover your costs. Additionally, if your broker declares bankruptcy, it may not have sufficient insurance to protect your annuity payments.

If you are considering a settlement after an auto crash, speak with a local car accident attorney before making a decision. Most auto crash cases are settled out of court but that does not mean you have to accept the terms of the settlement. An experienced attorney can help you fight for the compensation you deserve and will guide you through the settlement process.