Structured Settlements in Personal Injury Cases

structured settlements

Structured Settlements

Structured settlements are optional forms of compensation in personal injury cases.

In most cases that settle out of court, the person who harmed you (or his or her insurance company) agrees to pay one lump sum to settle the case. In some cases, the settlement may be hundreds of thousands or even over a million dollars: examples are catastrophic injury or wrongful death cases where the amount of damages is substantial. In these cases, the insurance company may offer a structured settlement as an alternative to a lump-sum payment.

In a structured settlement, rather than paying you all at once, the insurance company agrees to pay you over time. For example, the insurance company may agree to pay a certain amount up front, and then make payments monthly, quarterly, or annually, over a set period, or for life, depending on the agreement. The insurance company guarantees these payments through the purchase of an annuity or other financial product.

Structured settlements can be set up to relieve the income tax burden on the recipient. Under the Taxpayer Relief Act of 1997, the amount you receive in a structured settlement may be tax-free, depending on your total income.

An advantage to a structured settlement is that it protects the injured party from squandering the money too quickly. Most victims of catastrophic personal injuries or wrongful death do not have experience managing large amounts of money. Studies show that, like lottery winners, many personal injury victims spend a significant amount of their award within five years. What they overlook is that the settlement is designed to replace their earnings for life, to pay for ongoing medical expenses, and to compensate them for the pain, suffering and loss of enjoyment of life they suffer every day.

Structured settlements are useful in cases where the victim will require medical care for life, because the insurance company can arrange to pay for the medical care directly. In cases where the parents of young children have been killed, part of the settlement may be placed in a fund reserved for the children’s college education.

You may have seen television ads by companies offering to buy structured settlements for one lump sum. Under the California Structured Settlement Protection Act, you may sell your structured settlement to a third party, but only if the transfer agreement meets certain rigid terms, and is approved by a court. The agreement must clearly state the total dollar amount of payments you are selling, the present value of the amount you are selling, the net amount to be paid to you, and the full amount of expenses the company buying the structured settlement is charging you. You may cancel the agreement if you give the transferee written notice of cancellation at any time before the court agrees the sale.

If you are considering selling a structured settlement for a lump-sum payment, talk to a competent tax lawyer or Certified Public Accountant to determine the tax consequences of such a sale. Keep in mind that the amount you will receive is considerably less than the structured settlement is worth.

Always speak with your lawyer about the benefits and advantages of a structured settlement. It is completely your decision whether to take a lump sum or a structured settlement in a personal injury case.

Free Case Evaluation

Discover how we can help you..