Settlement Solutions: What Is Considered a Structured Settlement?
If you’re awarded damages in a civil lawsuit, you may have the option to receive your funds in a structured settlement. The best structured settlement is flexible by design and pays regular payments in a manner that meets your needs. For example, you can choose to defer payments, receive a large initial outlay, or spread out payments over a long period.
Read on and learn how structured settlement solutions can provide financial security for you and your family.
What is a Structured Settlement?
When a plaintiff wins or settles a civil lawsuit, they are often paid damages by the defendant in the case. This may be in the form of a one-time lump sum payment. But you may also have the option of receiving regular payments over time.
A structured settlement involves a financial product called an annuity funded by the defendant. Your settlement payments are guaranteed by and paid from this annuity.
Because you’ll receive payments spread out over time, the person awarded the settlement has a greater degree of financial security. In addition, unlike a lump sum payment that can be spent very quickly, settlement payments provide a regular income stream. Finally, structured settlement payments are tax-free, but investments made with those payments may not be – consult your accountant or financial advisor for guidance.
How Can I Setup My Settlement?
You can negotiate nearly everything about a structured settlement. That’s one of its best features. You have options to determine:
- the term (number of years) of the structure
- how frequently you receive payments (monthly, annually, somewhere in between)
- the amount of money in each payment
- whether you receive a final lump sum payment after a while
- how to ensure financial security for your heirs in the event of your death
When is a Structured Settlement Awarded?
There are many instances when a court awards a structured settlement to the plaintiff. For example, if a person is injured, they may receive a structured settlement to help cover medical expenses related to the injury. In addition, worker’s compensation cases and wrongful death suits often pay damages through a settlement to provide regular income to the family of the affected party.
When the plaintiff receives an award for a considerable sum, parties advise a structured settlement instead of a lump-sum award.
What are the Benefits of a Structured Settlement?
There are many reasons your attorney may advise you to accept a structured settlement. The regular payments are tax-free, and you can bequeath your settlement to a beneficiary in the event of your death. This ensures financial security for your loved ones.
You can customize the settlement to suit your needs. For example, receive a more extensive first payment and choose smaller payments over a long period. You can also opt for a lump-sum payout after a set number of payments.
Because an annuity guarantees your settlement, it doesn’t fluctuate with market conditions, and it earns interest. That means you don’t have to worry about the state of the stock market or changes to the economy. And because of the interest you earn over time; your payments may provide more money than a lump sum.
This type of payment settlement can protect your long-term financial interests. In many cases, plaintiffs who receive a one-time payment spend it frivolously or quickly – sometimes exhausting their compensation in a matter of months. However, with a structured settlement, your medical or living expenses are covered for years or even the rest of your life.
Are There Any Downsides to a Structured Settlement?
While there are many benefits to a structured settlement, it might not be the best option for you. While there is flexibility when setting up the settlement, there is little you can do to change it once it is agreed to. If your financial situation changes, you can’t renegotiate the terms.
There may be administrative fees associated with a structured settlement. These are paid to the financial institution or broker that manages your annuity. Make sure you understand all the costs and fees before you agree to a settlement.
Depending on your financial situation and the needs of your family, a lump-sum payment may make sense. However, it’s important to discuss your options with your attorney and financial advisor before deciding.
What If I Need Access to More Cash?
In some cases, a person may need more cash than your settlement payments provide. Paying for college tuition, buying a home, or paying off debt are common reasons people need immediate access to financial resources. If you have a financial emergency, you have some options to access more of your structured settlement right away.
It is possible to “cash-out” and sell structured settlements. Many structured settlement buyers pay you a lump sum in exchange for your annuity. This is typically a much smaller amount than the total value of your settlement, but it gives you access to the cash right away.
Another option is to sell a portion of your settlement. Companies like RightWay Funding provide up to $10,000 cash advances in a matter of days. If you need cash quickly but don’t want to sell all of your settlement annuity, this can be a great option.
Know Your Options
If you are awarded damages in a civil suit, it’s essential to know the available choices regarding your settlement. A lump-sum payment may make sense in some cases, but a structured settlement can provide long-term financial security for you and your family. You’ll receive regular payments to cover your medical or living expenses, and you can pass along your settlement to your heirs to provide for them after you’re gone.
If you face financial hardship or need access to more cash sooner than your settlement payments allow, it’s possible to sell some or all of your settlement. Cash advances against your settlement annuity can help you pay for college, purchase a home, or pay off debt.
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