What’s the Difference Between a Structured Settlement and a Lump Sum?
Structured settlement vs a lump sum payment. Trying to nail down your choice in the midst of dealing with a personal injury claim or trial is not a task for the faint of heart.
Thankfully, you don’t have to do it alone.
When you win your personal injury lawsuit, you’re entitled to receive payment as compensation for the harm and damage that you’ve already suffered, or will continue to suffer for long into the future.
This compensation can come all at once, in the form of a lump sum, or it can come in the form of a structured settlement.
If you’re unfamiliar with these two forms of payment, no worries. You’ve come to the right place.
Keep on reading to learn all about the differences between a lump-sum payment, and a structured settlement. Also, you get to know how to make the right choice between the two forms depending on your financial needs.
What Is a Lump Sum Payment?
Let’s start with the simple basics first, and it can’t get simpler than a lump sum payment.
Basically, getting a lump sum payment is the simplest and most straightforward way to receive compensation for your damages. It’s, just as it sounds, a single-time payment, with all of the money received in one go.
This form of payment will completely satisfy the other party’s financial obligation in full. Meaning, once you receive this money, that’s it. You won’t be getting anything else.
What Is a Structured Settlement?
On the other hand, you can receive your injury settlement in the form of a structured settlement.
It’s made up of smaller periodic payments, instead of a lump sum of money. You’ll get to access the settlement funds over a long period of time, instead of shortly right after the settlement.
Traditionally speaking, a structured settlement might vary in your payment frequencies depending on the number of payments. Therefore, you can receive your payments for years and years into the future.
What makes a structured settlement unique is your ability to create the terms that you’d like. For instance, if you’d prefer to get a large payment upfront to cover any pre-existing medical bills or costs, you can do so.
It’s a great strategy to use, especially if you’re aware that you’ll be dealing with medical bills sooner rather than later.
Yet, if you’d prefer your payments to increase as time goes on, so you can use them to cover your future expenses or the expenses of your kids, then you’ll want to get a smaller payment upfront to balance the larger payouts in the future.
Basically, you have the freedom to tailor your structured settlement to your preference and financial needs.
Structured Settlement 101: How Does It Work?
In the simplest of terms, if you choose to go the structured settlement route, the funds usually go to a third-party insurance company.
Needless to say, the calculation can be a bit complex, when the responsible party has to nail down how much they need to pay the insurance company to fund the settlement.
Since the funds can actually increase in value due to some smart investments on the insurance company’s side, the responsible party will be paying less than what you’ll receive as your net monthly payments.
Furthermore, there are some factors and information that will come attached to your settlement agreement, and you need to be aware of them:
- Payment frequency;
- Number of payments;
- Up-front payment details (if applicable);
- The duration of the payment (for example, in years);
- The progression of payments (whether the payments are getting larger or smaller in size);
- The condition of payments in the case of the recipient’s death
Of course, your own structured settlement might have unique attributes, and that’s perfectly normal. However, the elements described above tend to be present in the majority of settlement agreements.
Regardless of what you choose to do, you’ll want to work with a reputable third-party like Rightway Funding.
Why You Should Get a Structured Injury Settlement
There are some great benefits that you can gain by going the structured settlement route, instead of a lump sum payment.
First, you don’t have to worry about spending the money a bit too fast. Second, you get to take advantage of the tax benefits when you receive the money over a specific time period, in the form of an annuity.
Third, knowing that there will be future payments providing you with income far into the future can give great peace of mind.
Fourth, if you tend to have annoying friends or family members constantly asking you for money, you can say that you don’t have any, and you wouldn’t be lying.
Why You Should Get a Lump Sum Payment
As with any form of financial payment, it comes with its advantages and disadvantages.
Depending on your financial situation, you might actually prefer to get your compensation in the form of a lump sum payment.
First, it’s a great way to get all of your outstanding bills out of your way.
Second, once you have your settlement terms put to paper and signed, there will be no changing it. It’s basically set in stone, even if your circumstances change in the future.
Third, you have zero control over managing the money and making it grow by investing in the right financial instruments.
Picking the Right Settlement for You
Depending on the circumstances of your accident, and your preferences, you can go either way.
Yet, if you’re looking at a small (or medium-sized) settlement amount, you should prioritize getting them in a lump sum payment.
After all, it’ll help you compensate for your immediate costs and losses. On the other hand, if you’re looking at a big amount of money, you’re probably better off choosing a structured settlement.
Solving the Dilemma of Personal Injury Settlements
It can be a bit overwhelming to try to understand your legal and financial options, right in the middle of a personal injury case, where you’re probably dealing with physical and mental pain.
Hopefully, our guide on the perks and drawbacks of a structured settlement vs a lump sum payment has simplified the process for you.
Just remember to always talk to your attorney about your options.
