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Most civil claims and cases are settled out of court. A settlement usually requires the plaintiff to agree not to pursue further legal action against the defendant if the defendant pays the plaintiff money in exchange for his or her wrongful actions toward the plaintiff. The defendant’s insurance company can also pay this money.
The plaintiff can receive the payment at once (as a lump sum) or in a series of payments (instalments over time). When the plaintiff agrees to a structured settlement, he or she will receive payments over a certain number of years. The plaintiff may even receive payments for the rest of his or her life! People who have suffered serious injuries prefer a structured settlement since they’ll have a guaranteed stream of income for a longer period of time.
The defendant’s insurance company will generally place the money in an annuity fund to finance the payments. Annuity funds produce regular streams of income. The contracts may be complex since annuities are expected to cover a variety of expenses over some time.
Before you sign anything, you must discuss the annuity contract with various professionals, including a CPA, a tax lawyer, and a personal injury lawyer in Cambridge. Do that to ensure you’re getting the best settlement and deal possible.
Advantages of a Structured Settlement
You can get a generous tax benefit by accepting a structured settlement. Personal injury settlements aren’t considered to be taxable income. You’ll also have a guaranteed income stream for a certain time. Just note that lump sum payments may be better if the recipient is a minor. You may want a lump sum if you have suffered serious injuries or medical conditions and know you will need future treatment or doctor’s visits.
Structured settlements are funded by annuities you can customize them (the annuities) to cover your specific needs. You can also set and modify an annuity over time to give you bigger payments over the years to cover any medical expenses you may incur from your accident. The same is true for future contingencies.
Most states have insurance laws that protect annuities, guaranteeing that the insurer will always have the funds needed to pay your settlement. While insurance companies are technically and legally not allowed to declare bankruptcy, they can avail a ‘safety net’ in the state where they’re located. Should the insurer become insolvent for any reason, the state’s guaranty association will pay off its obligations, subject to certain limits.
You can combine a lump sum payment with a structured settlement if you have certain bills to pay and expenses to meet. These include, but are not limited to, medical bills, rehab costs, and debt repayment. You can use part of a structured settlement to pay for advances in medicine that may materialize in the future.
Disadvantages of a Structured Settlement
The defense may agree to settle if you agree to a structured settlement. If you have a structured settlement that includes punitive damages, keep in mind that the punitive damages portion is taxable. Any part of the settlement paying for lawyer’s fees and pain and suffering can also be taxed.
The annuity payments are never adjusted for inflation or other costs of living increases. Structured payments are also not recession-proof.