Structured Settlements: An Overview

Structured settlements were introduced as a way to handle personal injury cases. Instead of taking a one-time cash payment, you can opt for structured settlements, which provide an initial large payment for immediate needs followed by regular payments for a set number of years. Both options have their benefits, so you should decide based on your financial situation before making a deal.

Advantages of Structured Settlements

Structured settlements offer several benefits:

1. Guaranteed Payments: Payments are ensured through purchased annuities.
2. Tax Benefits: Payments are exempt from federal, state, dividends, income, and capital gain taxes.
3. Financial Planning: Professional consultants help plan for both current and future financial needs.
4. Stable Funds: No risk of losing money due to market fluctuations or poor financial management.
5. Healthcare Benefits: Eligibility for state, federal, and private healthcare programs remains intact.
6. Flexibility: You can tailor the payment schedule to fit your needs, whether it be monthly, quarterly, yearly, or a mix of these options.

Cases for Structured Settlements

Structured settlements can be used in various injury-related cases, regardless of the amount involved. Many cases handled by insurance firms involve less than $50,000. Structured settlements are useful in situations involving:

– Long-term medical needs
– Permanent or temporary disabilities
– Juveniles or mentally challenged individuals
– Severe accidents causing physical or brain damage and reduced life expectancy
– Dependents’ needs in cases of death

They are also applied to personal damages like property loss, sexual harassment, divorce, wrongful termination, discrimination, and environmental damage.

The primary goal is to address the claimant’s immediate needs, such as additional income, tuition, mortgages, pensions, and urgent medical expenses. Once these are met, other expenses like down payments for homes or cars, home renovations, legal fees, important tax payments, and vacations are considered. Given the diverse needs of individuals, working with professional consultants is crucial in drafting structured settlements.

Why Choose Structured Settlements Over Lump Sum Payments?

There are several reasons to choose structured settlements:

1. Tax Breaks: Structured settlements include tax benefits as long as the claimant doesn’t control the funds directly.
2. Financial Security: Structured settlements provide a steady income over time, preventing quick depletion of funds. Research shows that many people who receive lump-sum payments exhaust them within five years and then rely on government aid.
3. Adaptability: Payments can be adjusted if there are changes in financial or medical needs, including new treatments or equipment.
4. Security: Even if an insurance company goes bankrupt, state laws ensure that installments continue.
5. Conflict Resolution: Structured settlements can help resolve disputes between parties.
6. Reliability: Offered by leading insurance companies, these settlements are a secure form of compensation. Many of these companies have survived depressions, wars, and recessions.

Compared to existing investment plans, structured settlements are often the better choice because they are tax-exempt, offering better returns than many low- and medium-risk investments. Higher returns usually involve higher risks, and structured settlements offer a guaranteed share to a beneficiary or spouse in case of the claimant’s death. They help avoid the quick depletion of funds and protect against poor investment choices.