Structured Settlement or Lump Sum: Which is Better After a Personal Injury?

Legacy Law Missouri

Structured Settlement or Lump Sum: Which is Better After a Personal Injury?

The U.S. legal system provides numerous protections that help to ensure that you may be entitled to compensation for your personal injury. Should your personal injury claim be successful, culminating in either a win in court or an out-of-court settlement, you can generally choose to receive your compensation as either a lump sum or a structured settlement consisting of a series of payments over a specific period of time.

However, deciding which method of payment is preferred is not always the easiest choice. For this reason, it’s generally a good idea to consult an attorney like personal injury lawyer Phoenix AZ trusts for advice before making your decision.

Lump Sum vs. Structured Settlement

Lump sums are typically the more common options for minor to moderate personal injury claims. According to the U.S. Bureau of Justice Statistics, the average damage award for civil cases is approximately $28,000. In the average case where the total damage award is fairly low, there is typically no reason to spread it out over time with a structured settlement.

On the other hand, plaintiffs who suffer from more severe personal injuries — especially injuries that result in permanent damage, disfiguration, or death — are more likely to be compensated via structured settlements. Although you can still choose to be paid via a lump sum, structured settlements generally have a number of benefits that make them a better choice for larger damage awards.

Managing Money Through a Structured Settlement

One reason that many people choose a structured settlement is that it makes it much easier to manage the money. Instead of getting a huge sum all at once and having to try to avoid blowing through it all quickly, a structured settlement allows you to spread the damages out over a longer period of time to ensure that you’ll have money when you need it most.

Structured Settlements Are Tax-Free

Another major advantage of a structured settlement is that the majority of them are paid in the form of an annuity. This annuity is an investment that allows your settlement money to grow over time, which means you’ll end up receiving more than the actual damage award. With this type of annuity, both the payments you receive and the dividends and interest earned on the annuity are free from both state and federal taxes.

The same isn’t exactly true for lump-sum payments. Although you won’t have to pay any taxes on the lump sum itself, you will still be liable for taxes on any dividends and other proceeds you earn from investing the sum. This means that, all things considered, you’ll generally end up receiving more money by choosing a structured settlement.

Structured Settlements Offer Some Flexibility

One great thing about structured settlements is that they provide quite a bit of flexibility as you can write the settlement in a number of different ways. For instance, the settlement can be written so that you’ll immediately receive a larger sum to cover any medical bills and then the remaining balance will be paid out over a set number of years. Similarly, you can also set the settlement up so that you’ll receive a larger sum at some set point in the future, such as a year or two from now, which will allow you to cover any major bills or expenses you know are coming.

Unfortunately, this flexibility only applies until you’ve signed on the dotted line as a structured settlement cannot be changed once finalized. This means that it is important to consider all of the possible factors when creating your settlement. For instance, you may want the payments to increase slightly over time in order to keep up with inflation.

Contact a Lawyer Today

The fact that structured settlements can be quite complicated means it’s always a good idea to consult with an estate planning lawyer. By doing so, you can hopefully ensure that your settlement is set up in a way that keeps you financially secure.

The truth is that it is incredibly difficult to navigate through a personal injury case on your own. Therefore, if you or a loved one have been injured, it’s vital that you contact a lawyer to discuss your options and determine the best way to proceed.




Thanks to our friends and contributors from Alex & Saavedra, P.C. for their insight into structured settlements vs. lump sum estate planning.