Structured Settlement vs. Lump Sum Payment

What Is The Difference Between A Structured Settlement And A Lump Sump Payment

If you are injured in an accident, you will probably be offered either a lump sum payment or a structured settlement. Many people wonder which type of settlement is best when talking about settlement packages. This article will explain the difference between the two settlement packages as well as the advantages and disadvantages of each.

Lump Sum Settlements

With a lump sum settlement, the entire amount of the agreed upon settlement will be dispersed at one time. This type of settlement is usually offered when the settlement amount is smaller. It may also be offered if there is a catastrophic injury that caused a death. The party’s heir will be left paying for a funeral as well as numerous medical bills.

One of the disadvantages to this type of settlement is the tax consequences. You would be responsible for the taxes on the lump sum amount. It will also change your tax bracket, which could mean an increased tax percentage.

An advantage to a lump sum settlement is the ability to receive all settlement money at one time. If you have numerous medical bills and are not permanently disabled, this may be the best option as it will allow you to immediately pay off all medical bills and get all of your payments up to date if you have been off work for some time.

Structured Settlements

Structured settlements are monetary agreements where the defendant agrees to pay the injured party smaller payments over a period of time rather than a lump sum. This type of settlement is often offered when the settlement amount is large. It is also offered when the injured party has injuries that will require continual medical care over their lifetime. This will provide the injured party with income over their lifetime, which is especially beneficial if the injured party suffers a disabling injury that prevents them from ever working again.

One of the disadvantages to this type of settlement is the inability to receive all of the money up front. Many people would rather receive a large lump sum rather than it be paid over the injured party’s lifetime. Additionally, some structured settlements have clauses that say in the event the injured party dies, no more monies will be paid.

An advantage to a structured settlement is that the injured party will have a continual flow of income over their life. This type of settlement is paid in a series of smaller amounts, which offers tax advantages. Because the amount is broken down over time, the tax consequences will be significantly less than a lump sum settlement.

Finally, a structured settlement prevents the injured party from spending the entire settlement too quickly.

As you can see there are many things to consider when you are offered the choice between a lump sum settlement and a structured settlement. Sometimes the choice is not offered.

No matter the type of settlement you are offered, read all of your paperwork carefully and have your attorney read over it before signing anything.

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