In simplified terms, a structured settlement is a voluntary agreement where the plaintiff chooses to receive periodic payments over time versus one lump sum payout from the defendant in a personal injury case. Payment options are variable and can be monthly, quarterly, semi-annual or annual, depending on the terms and preferences of the claimant.
In 1982, Congress adopted the Periodic Payment Settlement Tax Act as a practical means for plaintiffs to receive tax-free damages from defendants in small installments spaced out over many years, rather than one lump sum. For example, if you are injured in a car accident and receive a $200,000 lawsuit settlement from the insurance company, but choose a structured settlement in lieu of cash, you’ll get payments over a term of years or your entire life, and each installment is tax-free. A structured settlement may be agreed upon prior to trial between private parties, or it may be required by a court order.
In most situations, structured settlements function as an annuity where regular payments are made based on a legal agreement between plaintiff and defendant. In other more complex scenarios, a claimant may choose to get a portion of the lump sum up front, followed by smaller periodic payments for a set number of years.
Why do people choose structured settlements?
Besides the obvious tax benefits of a structured settlement, this financial arrangement offers great flexibility in how and when you choose to receive periodic payments. Structured settlements can be tailored to meet virtually any needs of a personal injury victim. Basic payment plans can be set up where equal amounts are paid at set monthly intervals for a period of 20 years; or a plaintiff might elect to receive a larger sum every three years to cover expenses that are reoccurring. For many people, receiving a steady influx of tax-free payments is a smart choice to meet both basic living requirements and future medical costs.
Pros and cons of a structured settlement
There are multiple advantages to choosing structured settlements versus a lump sum lawsuit settlement, including:
- The payments are 100 percent tax free
- Payment terms are very flexible to fit your needs
- Periodic installments can help cover recurring expenses for medical bills or daily living
- Offers long-term financial stability and protection for you and your loved ones
- Enables you to meet life long rehabilitation or permanent care facility expenses
- No risk of losing a lump sum payout on investments or from poor financial management
On the other hand, there are two primary disadvantages to opting for a structured settlement:
- The regular payments can’t be borrowed against, deferred, accelerated or changed once you have agreed to the settlement terms.
- A risk that the insurance company defaults and is unable to continue making payments as part of your agreement. However, this risk is somewhat low as every state guarantees annuities up to a certain amount paid by insurance companies (this does not include workers’ compensation reinsurance).
Though structured settlements provide security for future needs, some people will feel trapped by periodic installments, particularly when an unanticipated expense arises and large sums of cash are needed right away. A major medical expenditure or a large purchase (for a home, new vehicle or college tuition) can leave some feeling frustrated since a structured settlement cannot be borrowed against.
What kinds of cases end up with structured settlements?
Lawsuits involving personal injury, dangerous drugs/ defective medical devices and medical malpractice commonly resolve with structured settlements. In addition, they may also be used in the following cases:
- Employment disputes
- Property damages
- Punitive damages
- Business disputes
- Law firm break-ups
- Workers compensation
- Lottery prizes
Can I sell my structured settlement for cash?
There are times when small, periodic payments are not sufficient to meet the financial demands of a large purchase or unforeseen cost. A host of factors can come into play, but know that if you need cash in the short term, you can sell your structured settlement annuities to a legal funding company like LawStreet Capital, which then provides a lump sum cash advance. This option has helped many families make college tuition payments, afford a new home or pay down medical bills when the need arose. Whatever the motives, selling a structured settlement for a post settlement cash advance can make a dire living situation much better in a relatively short period of time.
Apply for legal funding today
If you’ve agreed to regular payments in a structured settlement but need access to funds right now, contact LawStreet Capital to learn more about selling your annuities for a lump sum payout. The nation’s premier legal funding provider, LawStreet Capital features a 24-hour authorization process and once approved, your cash will be transferred to your account or sent via overnight mail – it’s just that simple.