Have you been injured at work or in a car accident? Are you wondering if you need a structured settlement, and what the benefits are?
When you’ve gotten hurt, the pain doesn’t stop after you get to the hospital. Medical bills, lost wages, and ongoing treatments require funds that you will need in order to get back on your feet.
Structured settlement payments can work to your advantage in a number of ways. Here’s what you need to know.
What Is a Structured Settlement?
In most civil lawsuits, an individual or company will end up paying money to the plaintiff in order to right a wrong. Those responsible may choose to settle outside of court or get forced to pay after the case goes to trial.
The plaintiff may get their money as one lump sum, or they may have the option to receive a series of tax-sheltered payments over time. This is what’s known as a structured settlement.
Depending on the type of arrangement you have, structured settlement payments may get made weekly, bi-weekly, or monthly. You could also receive payments annually, semi-annually, or every other year.
A death benefit can also get stipulated with lifetime payments. This means that the funds will get paid throughout the period whether or not the payee survives the entire schedule. In these cases, a beneficiary can continue receiving payments tax-free.
Structured settlements provide a source of income throughout the recipient’s lifetime. They offer a number of advantages.
1. Tax-Free Payments
All of the income from a structured settlement is tax-free. This means that the settlement award, principal, and any interests you earn on the money is protected from taxes.
Depending on which state you live in, income taxes can really deplete your earnings. With a structured settlement, you don’t need to worry about the income from your payments getting taxed.
2. Tailored Payments
The payment regularity and size will get customized depending upon your situation. For example, if you have ongoing medical expenses, your payments will get structured to allow you to make them throughout your lifetime.
You may also have living expenses and educational expenses that your annuity will be structured to provide for. You may even have cost of Living adjustments built into your payment schedule. This means your settlement gets designed to increase your amount as the cost of living rises over time.
Payments can get scheduled for any length of time. They can begin immediately or get deferred as requested.
3. Avoiding Overspending
It can be tempting for those with ongoing needs to make large purchases after they receive a lump sum. If you have a condition that requires long-term care, you could end up depleting your funds before you need them.
Structured settlements can actually help with money management for victims of accidents.
4. Guaranteed Payments
The insurance company that issues the annuity will guarantee payments. In the unlikely event that they become insolvent, the state’s insurance guarantee association will still protect you from losing payments. Structured settlement payments get rated very high by index providers.
5. Protected From Risk
Many ongoing sources of income come with their share of risk. These include stocks, bonds, and mutual funds.
Structured settlements, however, get designed to help plaintiffs avoid financial risk. Your payments won’t be subject to risky investments, market changes, or bad advice. They are financially secure and even considered a strong retirement planning tool.
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6. Yields More Than Lump Sum Payments
In general, you’ll end up getting more money from a structured settlement than a lump sum payment. This is because of the interest that an annuity will accrue over time.
7. Direct Deposit
Anyone with a regular income knows how tricky paychecks can be. You need to find time to get to your bank when they’re open and sometimes wait for the check to clear.
With a structured settlement, however, direct deposit is always an option. This means the funds will be deposited right into your checking or savings account and you’ll have them when you need them.
Structured Settlement Contracts
As a plaintiff, you can decide how the money from your contract will be provided. It’s important to consider your options carefully as they relate to your financial needs.
Your contract will include a payment schedule, start dates, end dates, and death benefits. You may choose lifetime benefits or payments over a certain number of years. If you have a time limit on your payments, they may be larger but you’ll be without the income after the time has passed.
Joint and survivor options are also available. This arrangement is a guarantee that your payments will continue to be made until both you and your beneficiary pass on. Joint and survivor options are particularly popular among married couples.
Before talking to your lawyer about how to structure your settlement, you’ll want to think about your immediate needs. Do you have a lot of hospital bills right now that you’re obligated to pay quickly?
You’ll also want to carefully consider any ongoing payments you have both now and in the future. What living expenses will you have that you won’t be able to pay because of your injury? Will you need physical or psychological therapy?
Structured settlements are individual arrangements that take your situation carefully into account. If you’re honest about your needs, a structured settlement can provide you with peace of mind and security.
A serious accident can be a trying time both physically and financially. If you’re facing lost wages and medical bills due to an accident, a structured settlement can help you recover the funds you need to move forward with your life.
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