Accounts Receivable Factoring

Structured Settlement Payments Vs. Lump Sum Payment

Structured settlement payments came about as an option to those who have been injured through an accident or through an act of malice against them. 

By law, anyone harmed either intentionally or unintentionally by another is entitled to claim compensation against the person or persons who were responsible for causing them injury.

Although a defendant can opt to take the case to trial and fight the charges against them, nowadays many prefer to come to some kind of agreement when they realize that in all likelihood they will be found responsible by a court of law.

Either way, should the defendant admit responsibility, or should you prove your case in front of a judge, you will be entitled to a compensation payout which comes in the form of a lump sum structured settlement or pre-agreed regular payments.

What are the differences between structured settlement payments and lump sum payments?

A structured settlement is when the compensation you have been awarded is spread out over a number of years. The payments will be paid out according to a schedule, such as every year or every month.

The defendant has to make these payments according to the agreed timetable, and so they usually make use of annuities from insurance companies to ensure that they keep to that schedule. However, a defendant can choose other means to organize the payments.

Lump sum awards are different from structured settlement payments as the whole amount of compensation is awarded in one go.

Many people prefer this option as the large sum they receive means they can use the money to invest, buy property etc.

Which is best for you?

So do you go for a structured settlement or a lump sum? The decision is completely up to you, and so you will need to consider the implications of both, which includes investment opportunities, taxes and your future income.

Taxes are a big concern, because a structured settlement is usually exempt from taxes whereas a one off payment is not. Therefore, cashing in all at once comes with a tax burden.

Consider what you future income is likely to be. With a structured settlement in place, you are assured of regular income for the rest of your life.

For people who have been severely disabled and are completely unable to work, this can be a very reassuring thing – certainly not something you should throw away without putting much thought into the consequences.

Also consider that while a lump sum is good to have if you want to invest or pay other large expenses, opting for structured settlement payments doesn’t mean you will never be able to access the money if you really need it.

There are many companies out there that can purchase your future payments from you at a later date, so selling structured settlement payments later on is also an option open to you.

There are also structured settlement loans available, where you can borrow against future payments in the event you need to access some of your entitlement earlier than planned.

One downside to structured settlements is that they can limit the investment opportunities open to you, as the installments are never usually enough to make big profits with.

Therefore, if you consider your financial acumen to be good enough, then a lump sum may be the best option for you.

It’s never an easy choice to make, so just remember to take your time and weigh up the pros and cons of each before making your final decision.

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