Structured Settlements in Car Accident Claims: The Pros and Cons

The Pros and Cons of Structured SettlementsWhile the majority of car accident victims chose to accept their settlement in a lump sum payment, in some cases, it makes more sense to receive payments through a structured settlement. A structured settlement is an agreement to accept payments of the settlement proceeds over a period of time or for the victim’s lifetime. The amount of the payments, frequency of payments, length of the settlement, and other important terms of the agreement can be negotiated so that the needs of the victim are best met. Is a structured settlement right for you? Here, we explain some of the benefits and drawbacks of these settlements to help you decide.

Pros and Cons of Structured Settlements That You Should Consider

Structured settlements are most often used when an accident victim suffers catastrophic injuries that limit his ability to work and he requires long-term assistance with his day-to-day needs. Like many decisions in life, there are pros and cons to a structured settlement that you need to consider when deciding if this is how you want to accept your settlement. Here are some of the pros of a structured settlement:

  • If you are afraid that you will spend your money too quickly if you receive it in a lump sum, you may prefer to receive your payments in a structured settlement.
  • While much of your settlement is not taxable income, some of the proceeds—such as punitive damages and interest—may be taxed. By spreading your payments over time, you can reduce the yearly amount of income taxes that you pay.
  • You can combine a lump sum payment up front or at a later date when you need it for anticipated medical costs, college expenses for a child, or other expenses with payments over time so that your current and future needs are met.
  • As well as for victims who suffer catastrophic injuries, a structured settlement may be a good option for a minor who will need his settlement proceeds to help with his college or other future expenses.

Here are the cons of a structured settlement that you also want to consider:

  • If your settlement is not large enough, a structured settlement may not work for you.
  • You lose control over when you can use your money because the structured settlement is a binding agreement that sets specific dates for your payments. If you have an unanticipated future expense, you may not have the funds to pay for it even though you will be owed large payments in the future.
  • You may be able to obtain a better return on your settlement proceeds if you receive them in a lump sum payment and invest the money yourself. Most insurance companies purchase an annuity policy to pay for a structured settlement that guarantees the victim will receive his payments but may not be a good investment option.

Do you have questions about entering into a structured settlement? Need assistance negotiating your settlement? Our experienced car accident attorneys are here to answer your questions and fight for the compensation that you deserve from the negligent driver. Call our office today to schedule your free initial consultation.


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