What is a structured settlement?

You may actually be surprised to learn that this is a very common question asked by people who have suffered injury due to the recklessness or carelessness of others.

Essentially, a structured settlement is a type of compensation award bestowed upon a plaintiff who successfully wins a court action against an individual or company they accuse of being negligent and causing them serious injury.

These settlements are designed to make it possible for the defendant to be able to pay the amount of compensation awarded without having to go bankrupt or get into severe debt.

Sometimes, plaintiffs will have the option of choosing a structured settlement annuity or taking a lump sum, while other times the plaintiff may have no option but to accept a structured settlement if the defendant reasonably afford all the money they owe.

Understanding what is a structured settlement and how they work

Structured settlements allow the defendant responsible for your injuries to pay your compensation over time, in regular installments paid according to whatever timetable has been agreed.

This can usually be determined by the plaintiff, so if you feel that monthly payouts are better than annual payouts then you can opt for this. Consider carefully how the installments should be paid so that you gain the most benefit from them.

If a defendant can afford to do so, they may well make you an offer of a lump sum payment rather than a structured settlement.

While this may seem tempting, you need to consider very carefully if this is really going to be to your advantage.

Be honest with yourself and decide if you will realistically be able to manage such a large sum without squandering it all in a few short months.

Not everyone is good at managing money, and if that sounds like you then structured settlement payments are a much safer option.

You should also consider what is a structured settlement worth versus a lump sum settlement.  While there is no difference in the amount on offer, there are tax considerations.

A lump sum settlement will immediately become subject to income tax and so you will have to hand over a large proportion of your compensation to the Inland Revenue before you even get to see the money in your bank account.

When you choose a structured settlement payment however, your tax obligations will be considerably reduced as there are many laws that provide for tax exemptions in the case of settlement annuities.

With a smart lawyer on your side, you may even be able to negotiate a deal that eliminates your tax obligations altogether.

Another factor that has an impact is your health. If you are in very poor health or have been diagnosed with a terminal illness, then a lump sum may be best as this means you can enjoy the money while you are still able to do so.

However, it could also be possible to negotiate for your family to receive the structured settlement payments after your death, though this kind of agreement is very complex and not always easy to negotiate.

What is a structured settlement going to do for me?

This is the real deciding factor. You must decide how much an annuity can benefit your life.

While it won’t necessarily be able to repair the physical damage done to your body, a structured settlement offers financial security for years to come. That is not something you should dismiss lightly.