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What is a Structured Settlement

What is a structured settlement? This is an extremely important question to consider if you have been injured as the innocent victim of a company or individual’s negligence, and you have been awarded a large amount of money for your injury.

The reason this question is so important is due to the fact that the defendant may make a proposal to pay you with a structured settlement. A structured settlement is a financial arrangement in which the defendant wants to pay you the amount of money that you have been awarded in periodic payments on an agreed schedule, as opposed to paying you the total amount in a lump sum.

Any kind of schedule


A structured settlement can be done in just about any kind of schedule that you and the defendant agree to. For example, a structured settlement can be paid in periodic lump sums over a few years, or it can be paid in annual installments over several years.

Should you accept a structured settlement, or should you take a lump sum? Here are some advantages and disadvantages of a structured settlement for you to consider.

One advantage of a structured settlement is that it can protect you from having your settlement funds dissipate or disappear. Even if you receive a large lump sum settlement, it can disappear quickly if you are not good with money or cannot say no to relatives and friends who want to share in your good fortune.

Long-term special needs


Another advantage of a structured settlement involves long-term special needs. If your injury is going to mean that you will have long-term special needs, a structured settlement can help you purchase modified vehicles or medical equipment that you may need in the future.

Another important advantage of a structured settlement is tax avoidance. When a structured settlement is arranged appropriately, it may reduce your tax obligations by a significant amount or be tax-free in some instances.

One of the disadvantages of taking a structured settlement is that you may come out ahead by accepting a lump sum settlement. This is due to the fact that you can invest your lump sum settlement. There are several standard investments that yield a larger long-term result than the annuities of a structured settlement.

Periodic payments


Another disadvantage of a structured settlement is that you may feel like you are hemmed in by periodic payments. For example, you may want to buy an expensive item, such as a house. However, you are not able to do this because you do not have enough resources due to the fact that you cannot borrow against future payments of a structured settlement.

You may have already accepted a structured settlement and are not happy with it. You may wonder if you can sell your structured settlement for a lump sum of money.
This will depend on the state that you live in. Around two thirds of the states have enacted laws that restrict the sale of structured settlements. Tax-free structured settlements are subject to federal restrictions in regard to selling them to a third party. Also, to discourage you from selling your structured settlement, some insurance companies will not transfer or assign annuities to a third party.

If you are considering accepting a structured settlement or you have any questions regarding a structured settlement, the best thing to do is to discuss your case with a personal injury attorney.