Finance, Health & Fitness, Money

What Is a Structured Settlement? Everything You Need to Know

If you watch TV, chances are you’ve heard the term “structured settlement.” The airwaves are filled with commercials from personal injury lawyers and companies offering structured settlement plans.

If you haven’t experienced a personal injury, you likely don’t pay much attention, but if you have been injured due to the negligence of another person, you might be wondering “what is a structured settlement?”

We’re going to clear up any confusion you may have and help you understand if this is right for you after receiving a personal injury settlement.

What Is a Structured Settlement?

When you win a personal injury case and are awarded a settlement, you can choose how you receive the money. You can opt for one lump sum or you could choose a structured settlement, where you receive the money in smaller amounts over a set amount of time.

Benefits of a Structured Settlement

One of the biggest benefits of a structured settlement is related to taxes. The settlement amount may be taxable, depending on your tax situation. It’s best to speak to a tax professional about this, but if you set up the settlement properly, you may not have to pay taxes or you will pay lower taxes on the amount.

Another advantage of taking the money over time is that you make sure you don’t spend it too quickly and it’s there when you need it. If you need future treatment or surgery and spend it all when you first receive it, a structured settlement ensures that when those expenses come up, there will still be money left in your settlement.

Disadvantages of Structured Settlements

Because you don’t receive the money all at once, you may not have what you need if you incur a large, unexpected expense. Once you take a structured settlement, you can’t change it. Your only option is to sell the structured settlement to a company that will give you a percentage of what is left of the settlement amount.

If you opt to sell your structured settlement, be sure to research the best structured settlement companies and choose one that will give you the most money.

Structured Settlement Options

Another benefit of a structured settlement is that you can choose how you receive the money. While you won’t get it all at once, you do get to choose how often you get it and how long you stretch the payments. Some options include:

Postponed payments: you can postpone the payments for a number of years, such as until retirement

Substantial initial payment: you get a large first payment and then smaller payments periodically after that

Payments that increase or decrease over time: you can adjust the payment amount depending on what you might need throughout your life

Supplementary payments: you can have your payments increase or provide supplementary amounts at certain times, such as when paying college tuition or other large expenses

Work with the defendant to determine how you want to receive your settlement amount.

Is a Structured Settlement Right for You?

Now that you can answer “what is a structured settlement”, you can decide if it’s right for your personal injury settlement. If you aren’t confident you can save the money, invest it well, and avoid overspending, a structured settlement may be right for you.

If you found this article useful, be sure to check out some of our others.