What is a Structured Settlement?

As you read further in this article, you will begin to understand the various factors associated with the question, “What is a structured settlement”.  Because there are many different aspects to a settlement of this type, understanding your options would be essential.

As you read further in this article, you will begin to understand the various factors associated with the question, “What is a structured settlement”.  Because there are many different aspects to a settlement of this type, understanding your options would be essential.

When are Structured Settlements used?

Regarding when are structured settlements used, we wanted to use a specific scenario to set the state.  Driving around on a Saturday afternoon while minding your own business, you wake up in the hospital after being broadsided by another driver who was busy sending text messages to friends.  Because that individual was not paying attention to the task at hand, driving, the act of causing the accident would be considered negligence.

Now, you spend a week in the hospital and have to undergo two operations to repair a broken leg.  Unfortunately, the other driver’s insurance is balking at paying the amount you need but also deserve, which leads you to being in a position of filing a lawsuit.  That lawsuit resulted in you winning or coming to an agreement that was acceptable by both parties, which is called a “settlement.”  For sake of example, let us say you entered into a settlement agreement, which typically means the other driver’s insurance company or that individual if he or she had no insurance would be required to pay the amount settled for in one lump sum.

Lump Sum Payment versus Structured Settlement

Receiving a lump sum payment versus structured settlement might sound great but in truth, it could prove to be the wrong decision.  In some cases, a lump settlement could be taxed.  Therefore, the actual amount of money received could be substantially less than the amount awarded through the court system.  It would be important to know if your settlement would be taxed and if so how much so you could do the math.

Additionally, most people find temptation to be too great when receiving a lot of money at once and before they know it, the entire settlement has been spent and unfortunately, sometimes foolishly.  Even people who do a great job with budgeting and spending often find themselves spending too freely.  You know yourself best and advice on the amount of taxation would be important but to control spending while having consistent income, monthly payments from a structured settlement would be a better path to take.

Components of Structured Settlements

In learning about answers to the question, “What is a structured settlement”, it is advisable to understand the various components of a structured settlement so education decisions could be made.  While the primary component has to do with lifetime payouts, it is common to find more than one factor involved with a settlement of this type based on extent of injuries, what you believe you should receive based on the situation, and even a judge and the jury specific to the court of law where the case is tried.

•    Payout Amount – One of the many components of structured settlements that you might see is the amount of payout changing.  Sometimes, the dollar amount would be set at a fixed rate while other times the payout could increase to accommodate inflation.  In addition, a structured settlement may consist of regular monthly payments, followed by one large balloon payout every one to two years.
 
•    Upfront Payout – You may also find that settlements could provide you with money upfront, which would help with the cost of doctor and hospital bills, legal counsel, and even cost of living.

•    The last factor we wanted to mention is that if paid upfront cash, there would be restrictions applied.  This money is intended for the above-mentioned expenses but in some instances, any remaining money after meeting those financial obligations could be spent as you want or you would have the option of investing it.

•    Fixed Payouts – One of the additional components of structured settlements we wanted to mention has to do with fixed payments.  Sometimes, if your settlement were set up with fixed payments, a second fixed payment may be established.  While the first payout would last the course of the settlement, the second payout would be for a set number of years.

As you can see, there are a number of things associated with a structured settlement and the decision made could prove beneficial or challenging.  For this reason, take the time to learn all you can so as you make decisions from day one, they are based on solid knowledge.