Structured Settlements vs. Lump Sum Settlements in a Personal Injury Claim

When a person is injured in a Minnesota car accident, for example, they are often awarded a settlement in one form or another. Typically, these settlements are meant to cover a variety of damages. This can include medical costs related to the injuries, lost income if a person cannot work while they recover, pain and suffering damages, and more. However, there are a few ways in which a person can receive their settlement amount. One way to receive a settlement is in one lump sum payment. Another option is receiving the settlement through a series of structured payments. There are pros and cons to each type of payment, and we would like to discuss that here.

What is a Lump Sum Payment?

It is fairly easy to define a lump sum settlement payment. For these payments, the claimant will receive the total amount of their settlement in one large payment. These payments ensure that you will not have to deal with any of the payments and are typically awarded shortly after the settlement is reached.

Understanding a Structured Settlement

On the other hand, a structured settlement spreads the payments out over an extended period of time. These structured settlements may vary how often you get paid and the amount of the payments. When you and your attorney are negotiating a structured settlement, you can create whatever terms you want. For example, you may want to ask for more in the immediate period following the settlement so you can pay outstanding debts acquired due to your injury. On the other hand, you may expect that your medical bills will increase over time and make the structured settlement pay more in payments over time.

Some of the terms to consider when you think about your structured settlement include:

• The amount of the payments
• The frequency of payments
• How long you want to receive the payments
• Whether there is a larger payment upfront
• If there will be a larger payment at the end
• Whether payments will increase or decrease over time
• Whether payments will terminate on the death of the claimant or continue over a period of time

Some of the advantages of a structured settlement over a lump sum settlement include:

• Not running the risk of spending the money too fast
• The tax benefits of receiving the payments over a longer period of time
• The assurance of having an income in the future

Some of the disadvantages of a structured settlement over a lump sum settlement include:

• You may not have the immediate money you need to pay outstanding debt
• There is nothing you can do to change the terms of the settlement if your circumstances change
• You are not in control of your money to invest or save it

Which Type of Settlement is Better for You?

If you expect to receive a substantial settlement through a personal injury claim, you should certainly review your options with your Mankato personal injury attorney. Your attorney will have experience with these issues, and they will also be able to recommend a financial advisor familiar with these issues. You need to plan strategically and take your health, age, family situation, and more into consideration before making a final decision. The good news is that, if you have reached this phase of the process, you have likely won your case and are receiving a settlement.