In most cases that settle out of court, the person who harmed you (or in reality, his or her insurance company) will agree to pay you one lump sum to settle the case, be it $25,000.00, $100,000.00, $1,000,000.00 or multiple millions. In catastrophic injury cases or cases of wrongful death where the medical bills, lost wages, pain and suffering, and loss of comfort and society are large, the insurance company may offer you 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 a period of time. For example, the insurance company may agree to pay you a certain amount up front, and then pay you monthly, quarterly, annually, or otherwise over a set period of time or for life. The payments can be scheduled any way that you and the insurance company agree upon. It may be a monthly sum with a larger lump sum every three or five years. Or it may be quarterly payments of a set sum for ten years. The insurance company guarantees these payments through the purchase of an annuity or other financial product.
An advantage to using a structured settlement to resolve a serious personal injury case is that it protects the injured person (or the family in the case of a wrongful death) from squandering the money too quickly, leaving him or her unable to pay for his or her continuing medical and other needs. Studies show that people who suddenly come into a large sum of money, such as lottery winners and personal injury victims, spend a significant amount of their winnings or award within five years of getting the money.
Most victims of catastrophic personal injuries or wrongful death do not have experience managing large amounts of money. They buy new expensive cars, purchase a larger house in a better neighborhood, go on expensive vacations, and otherwise live the “high life” until they belatedly discover that all the money is gone, money that was intended to provide for their medical and financial needs for the rest of their lives. Many people who receive large lump-sum settlements treat them as though they won the lottery and go through the settlement in a few years. What they overlook is that the settlement is designed to replace their earnings for life because they are no longer able to work, to pay for ongoing medical expenses relating to the accident, and to compensate them for the pain and suffering and loss of enjoyment of life they suffer everyday.
Structured settlements are particularly useful in cases of catastrophic injuries that will require medical care for the rest of the victim’s life. For instance, in a case where the victim suffered third-degree burns over much of his or her body and will require reconstructive surgery and be prone to infections and other illnesses because of a compromised immune system, provision can be made in the structured settlement for the insurance company to pay for all medical care related to his or her condition for the remainder of the person’s life.
Structured settlements are also worth considering where the parents of young children have been killed because of another person’s wrongful conduct (“negligence”). Part of the settlement may be put in a special fund to pay for the children’s college expenses.
Suppose you were seriously injured in an automobile accident that was the other driver’s fault, and you agreed to settle the case with a structured settlement that will provide you with payments over twenty years. After a few years of receiving monthly payments, you decide you’d rather get all of the remaining money in a single lump sum. You see an ad on television by a company advertising that it will buy your structured settlement for one lump sum.
Under the California Structured Settlement Protection Act, you can 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 that 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 the expenses the person or 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, you should seek the advice of a competent tax lawyer or Certified Public Accountant to determine what the tax consequences, if any, will be to you as a result of the sale. But keep in mind that the amount the company buying your structured settlement for is considerably less than the structured settlement is worth, so in the long haul you will be losing a substantial amount of your monetary recovery.
Always speak with your lawyer about the benefits and advantages of a structured settlement. It is completely your decision, and not your attorneys’ in choosing whether to take one lump sum or a structured settlement in a personal injury case settlement.