Most people are quite eager to obtain the compensation they have been waiting so long to earn after winning a personal injury lawsuit. While it may feel wonderful to receive your entire settlement cash all at once in a lump sum payment, the truth is that this is not always the wisest course of action financially.
Structured settlements are actually the best approach for the majority of victims to get compensation in a personal injury lawsuit. Keep reading to learn more and then contact Law Offices of Fernando D. Vargas at 909-982-0707 to request a free legal consultation.
workings of structured settlements
Instead of receiving a huge lump sum payment right once after your personal injury claim is resolved, you receive a smaller check each month with a structured settlement. This can be highly useful for people who may need lifetime nursing care or continuing medical care as a result of their injury.
Structured settlements are typically financed through annuities. A life annuity or a predetermined period annuity (which will pay out for a specific number of years) may be your options (that will pay out for the rest of your life). In any case, you will end up getting more money from the annuity than from a lump sum payment. (Note that you are not receiving the additional funds from the defendant, but rather from the increase in your annuity investment.)
Structured settlements are frequently designed such that any money you owe to your insurance provider, doctors, or attorneys for legal fees is deducted before the annuity is bought.
The main benefit of a structured settlement
The main benefit of a structured settlement is that it offers a simple, risk-free, and tax-efficient option to invest your money. Theoretically, you could take a lump sum and invest it yourself to earn a higher return, but doing so would probably expose you to more risk and require you to pay capital gains taxes on any profits you generated. Annuity income is exempt from taxation.
a structured settlement: are there any negatives?
You lose control of your money with a structured settlement, which is its main disadvantage. The frequency or size of the payments cannot be changed after the paperwork is completed, and the annuity cannot be exchanged for a higher-yielding investment. Of course, this is not really a worry for everyone—some people choose structured settlements specifically because they lack the time or desire to become seasoned investors and manage their own money.
The failure of the business from whom you received the annuity is yet another potential disadvantage of a structured settlement. This is a very remote scenario, but if it happened, the annuity’s unpaid amount would be lost.
Making a choice
You might want to speak with a financial counselor for more specific guidance before deciding how to accept your bonus. You can also talk to Law Offices of Fernando D. Vargas at 909-982-0707 and we can offer specific advice based on your specific offers.
