**Understanding Structured Settlements**
Structured settlements were created for personal injury cases, offering an alternative to receiving a lump-sum payment. With structured settlements, after an initial large payment for immediate needs, the claimant gets regular payments over several years. It’s essential to weigh the pros and cons of both options and decide which best fits your financial needs before agreeing with the other party.
**Benefits of Structured Payments**
Here are some advantages of opting for structured settlements:
1. **Guaranteed Payments:** The payments you receive from structured settlements are backed by purchased annuities.
2. **Tax Exemption:** These payments are exempt from federal, state, and capital gain taxes, as well as dividends and income taxes.
3. **Financial Planning:** Working with professional consultants can help plan not just for present needs but also for future benefits.
4. **No Financial Loss:** Unlike market-dependent investments, there’s no risk of losing funds due to poor financial management.
5. **Healthcare Benefits:** Claimants can still benefit from state, federal, and private healthcare programs.
Structured settlements allow you to enhance your finances through annuities from reputable insurance companies, earning you special interest rates. The concept is highly flexible. Once an agreement is made, the claimant can receive payments on specific dates, for life, monthly, quarterly, annually, semi-annually, in fixed or varying amounts, or a mix of these options.
**When Are Structured Settlements Used?**
Structured settlements can be applied to various injury-related cases, regardless of the amounts involved. Many insurance cases involving structured settlements typically deal with amounts less than $50,000. They are useful in cases involving:
– Long-term medical needs.
– Permanent or temporary disabilities.
– Juveniles or mentally challenged individuals.
– Severe physical or brain injuries reducing life expectancy.
– Providing for a spouse or dependents in the event of death.
Additionally, structured settlements are often used in personal damage cases like loss of property, sexual harassment, wrongful termination, discrimination, and environmental damage.
Typically, the defendant addresses the claimant’s immediate needs first, such as additional income, tuition fees, mortgage payments, pensions, and current medical expenses. Once these are addressed, other needs like down payments for a new house or car, renovation projects, legal fees, crucial tax payments, and vacation expenses are considered. It’s crucial for individuals to work with professional consultants to draft these settlements to fit their unique situations.
**Why Choose Structured Settlements Over Lump-Sum Payments?**
Here are some reasons to consider structured settlements instead of a one-time cash settlement:
1. **Tax Benefits:** Structured payments offer tax advantages as long as the claimant doesn’t control the funds.
2. **Financial Discipline:** Structured settlements make it challenging to spend all the money quickly. Studies indicate that most people who get lump-sum payments deplete them within five years and then require government help.
3. **Flexibility:** These settlements have rules and regulations allowing payment adjustments for changing financial or medical needs, including new treatments and expensive equipment.
4. **Security:** State laws often guarantee annuities, meaning an insurance company must continue payments even if it goes bankrupt.
5. **Conflict Resolution:** Structured settlements can help resolve disputes between the parties involved.
6. **Reliability:** Offered by leading insurance companies that have survived economic downturns and wars, structured settlements are among the safest compensation methods for accidents or injuries.
Many wonder if structured settlements are better than other investment plans. Since these payments are tax-exempt, they offer better returns than low and medium-risk investments, which usually come with higher risks. The growing popularity of structured settlements is due in part to the guaranteed payments to beneficiaries, spouses, or successors if the primary claimant dies. Structured settlements help prevent rapid depletion of funds and protect them from bad investment choices.