In addition to the physical and psychological effects suffered by an accident victim, the financial stress that follows a personal injury case can be overwhelming for some people. Personal injuries cause financial concerns due to the unaffordably high medical and rehabilitation costs, lost income, and inflation. That is where structured settlements come into play.
Having a structured settlement gives those impacted by accidents or injuries a steady stream of income during their recovery.
Understanding Structured Settlements
A structured settlement involves payment of a claim through future agreed-upon periodic payments, as opposed to a cash settlement. These payments are suitable for future care costs and other living expenses since they can be designed appropriately based on the recipient’s requirements.
In order to prevent accident victims from depleting the funds too soon, structured settlements are intended to offer financial stability over an extended period of time. When there is a catastrophic injury and long-term care and support are required or an injured person is concerned about their ability to manage a large lump sum of money, this kind of settlement is often implemented.
The Benefits of Choosing a Structured Settlement
Long-Term Financial Stability
Another benefit of a structured settlement is that future payments are certain. You are assured that you will receive a steady income for the coming years or for as long as the period of the structure provides.
Protection Against Making Poor Financial Decisions
Naturally, it is undeniable that receiving a substantial lump sum of money all of a sudden can be daunting. The fear of making poor choices along with the susceptibility to receiving incorrect financial advice, are constant worries. This temptation is not present in structured settlements, and you can be sure that your funds are deposited and used appropriately to improve your future health and support reform.
Tax Benefits
Beneficiaries of a structured settlement gain a huge tax advantage. Typically, the money from a structured settlement escapes tax obligations. The benefit of having a structured payout instead of a lump sum is clear— receiving a structured settlement saves you from paying taxes on the income earned within the structure. Income tax-free structured settlements guarantee that beneficiaries obtain all of their awarded funds free from government tax withdrawals.
Personalized Payment Schedules
Another advantage of structured settlements is that they can be made in a way to suit individual cases since no two cases are ever the same. The payment plan can be built to ensure there is a ready fund at the time when it is most needed – for future educational expenses, home enhancements, or medical emergencies. And this can be set up for a particular number of years or over a lifetime, as needed.
For instance, an injured parent might want additional funding in the future to cover their child’s educational costs or might need help paying for other procedures. These needs can be met by modifying a structured settlement, guaranteeing that the appropriate sum of money is available when it’s needed.
Potential Drawbacks To Consider
- Loss of control: A structured settlement restricts instant access to a sizeable amount of money, in contrast to a lump sum payment. If someone needs a sizable sum of money up front or if there are unanticipated costs, this could be problematic. However, it is possible to obtain a portion of the settlement as a lump sum with the remainder paid into a structure.
- Possible legal costs: The total amount received may be lessened because setting up a structured settlement often involves paying administrative and legal costs.
- Dependency on the funding entity: Although the risks are low; the safety of the payments is contingent upon the funding entity’s financial soundness, such as that of an insurance provider.
- Diminished prospects for investment growth: Unlike a lump sum that can be invested, the funds in a structured settlement are usually not available for investment, which may restrict prospects for growth.
Would You Benefit From a Structured Settlement?
Although structured settlements align with the needs of certain individuals, they are not necessarily the right choice for all. A structured settlement may be especially advantageous in the following situations:
- You have sustained a severe or long-term injury that calls for continuous and long-term treatment.
- You’re worried about handling a hefty financial load.
- Should anything happen to you unexpectedly, you wish to ensure your family receives a stable income.
- You seek to cut down on the tax implications of the big settlement you are getting.
- You do not trust yourself with a large lump sum of money.
However, a lump sum payout might be better suited in the following cases:
- You need to pay off some significant, urgent bills.
- You believe you have what it takes to invest and manage a sizable amount of money.
- You require flexibility in allocating your settlement money.
Conclusion
Having financial security for the future is a key factor to consider when it comes to peace of mind following a personal injury case. Many victims of personal injuries need the financial security, flexibility, and tax advantages that structured settlements provide in order to go on with their lives.
If you are thinking about your settlement choices after an injury, SG Injury Law is here to help you determine if a structured settlement is the best course of action for you. You can concentrate on what really matters—your rehabilitation and your future—if you have the correct financial strategy in place.