Should Your Personal Injury Settlement Be Structured?

What is a Structured Settlement?

A structured settlement most commonly results from a personal injury lawsuit involving product liability, vehicle accidents, wrongful death, medical malpractice and negligence.

A structured settlement is a second option when settling a personal physical injury claim.  The settlement plan can be designed to meet the unique needs of the injured party. Instead of accepting a cash settlement in a single lump sum, the injured party may receive payments spread out monthly or yearly via an annuity contract issued by an insurance company.  The damages awarded are funded in the form of an annuity contract issued by an insurance company. 

The settlement structure is typically as follows:

• A company (usually an insurance company) is selected by the defendant to structure the settlement.

• The structured settlement company purchases an annuity contract and sends the payments from the annuity to the plaintiff. The payments are fixed in time and amount.

• The structured settlement company retains ownership of the annuity even though the plaintiff is the beneficiary.

Structured Settlement – Tax Benefits and Principal Protection

Instead of receiving cash in a lump sum, a structured settlement allows the injured party to receive future periodic payments made through a structured settlement annuity. There are three main advantages of a structured settlement.

First, it is TAX FREE. Structured settlements are covered under section 104 of the Internal Revenue Code of 1986 and therefore totally tax free, both federally and at the State level.  This tax treatment differs significantly from a lump sum settlement because investment proceeds made with lump sum settlement proceeds (such as interest and dividends) are subject to both Federal and State taxes.

Second, structured settlements offer inherent spending protections. Since the settlement money is received over a period of time, the injured party enjoys protection from bad judgment, bad advice, bad spending habits, or bad luck. The injured party does not have the worry associated with managing a huge sum of money that must last a lifetime. In fact, a structured settlement can survive bankruptcy.

Third, a structured settlement is guaranteed by highly-rated life insurance companies and their benefits do not fluctuate based on the volatile financial markets.  Put simply, the injured party has peace of mind knowing that their future payments will be made as promised and in an amount expected. 

Should you Structure Your Personal Injury Settlement? 

If you suffer from a personal injury resulting from any type of accident, a structured settlement may be the strategic choice for you.  In addition to additional tax incentives, it guarantees you and your family a stream of income over a period of time.  Managing a large lump sum settlement can cause additional stresses in life, knowing that you and your loved ones will have a certain payment each month or year can provide a tremendous feeling of security.  The attorneys at The Digesti Law Firm LLP can help you make a decision whether your personal circumstances counsel you to receive your personal injury settlement in a lump sum or in a structured settlement.