A personal injury lawsuit can be stressful, and wanting to relax after your case is a natural reaction. However, winning your case is not the final step. Deciding how you receive your financial compensation is a simple but critical choice that will affect your life going forward. Should you be considering structured or lump sum payments, given your financial situation?
The Two Options – Structured vs. Lump Sum Payments
Lump sum payments speak for themselves; after your successful case, you will receive a large amount of money in the form of one payment. A lump sum payout allows you to have total control over the entire settlement amount. You can pay off any bills, buy any items, or invest whichever way you see fit. These upsides, however, can also be seen as a double-edged sword. Similar to lottery winners, recipients of a huge lump sum amount run the risk of frivolously spending their money without adequately planning for the future.
In some scenarios, you might need a lot of money to pay off existing bills or debts incurred from your personal injury case. It seems like taking a lump sum payout is necessary for this scenario. However, a structured settlement can be negotiated to fit your needs and keep money coming in at regular intervals.
Structured settlements, as opposed to a lump sum payment, pay you out in periodic payments over a long period of time. The specific terms of your structured settlement can differ depending on your current needs. A partial lump sum payout to cover expenses and bills, followed by a stream of periodic payments, is best for those who need a current influx of cash but do not want to manage the entirety of their lump sum.
The payments from a structured settlement are often paid to you through annuities. Annuities are long-term payouts from an insurance company or third party that often come with tax benefits compared to lump sums or investments. Because a separate entity usually pays out the annuity payments from the defendant in your case, the terms must be negotiated thoroughly before being decided upon. Certain terms of your payment structure that can be arranged through your lawyer include the following:
- The frequency of payments
- The total length of the payment plan
- The monetary value of each payment
- The change in payment value over time
- The beneficiary of payments in case of death
A steady stream of additional income can supplement any unexpected costs in your life. However, receiving your money in a lump sum is often impossible after a structured settlement is agreed to. An additional catastrophic incident might put you in financial hardship without access to funds that would help. Proper financial planning and investment of your structured settlement payments are one of the best ways to grow your wealth over time and plan for the future.
Which Should I Choose?
The decision of how to receive your financial compensation is entirely up to you. Your personal life goals or ambitions and risk tolerance can significantly affect the best course of action, meaning the choice is different for everyone. If starting a business or making a huge purchase, a structured settlement might not allow the necessary funds to be obtained. However, taking all your money now removes a passive income source for the future.
If you are unsure which option is best for you, your personal injury attorney can inform you of flexible options that might suit your specific needs. At Probinsky & Cole, we have a long history of helping hundreds of clients receive compensation through personal injury lawsuits.
