Overview
Instead of receiving your entire settlement as a lump sum, you have the option to structure it, meaning the insurance company or defendant buys an annuity that pays you a stream of income over time. Structured settlements can offer tax advantages and help ensure you don't run through a large settlement too quickly, but they also mean you lose access to the full amount upfront. Understanding the tradeoffs helps you decide what works best for your situation.
Frequently Asked Questions
What is a structured settlement?
A structured settlement means your compensation is paid to you over time rather than as one lump sum. Typically, a portion of the settlement is paid immediately and the remainder is used to purchase an annuity that pays you monthly or annual payments over a set period. Structured settlements are often used in larger cases involving serious or permanent injuries.
What are the advantages of a structured settlement?
The main advantages include potential tax savings (payments for medical care and structured settlement payouts can have favorable tax treatment compared to a lump sum), protection against spending the money too quickly, and financial security through predictable ongoing payments. Structured settlements also ensure ongoing funds for long-term care needs.
What are the disadvantages of a structured settlement?
You don't have immediate access to all your money for emergencies or opportunities, the annuity rates may be fixed and not keep up with inflation, and you lose the flexibility to invest or use the money as you see fit. If you die before all payments are made, the remaining funds may go to the insurance company or annuity holder rather than your heirs, depending on how it's structured.
Can I change my mind about a structured settlement once I accept it?
Generally, no. Once an annuity is purchased, it's difficult or impossible to change. This is why it's important to understand the terms fully before agreeing. If you want payment flexibility, insist on receiving the settlement as a lump sum.
How do I know if a structured settlement makes sense for me?
Consider whether you have the discipline to manage a large lump sum, whether you have ongoing care costs that benefit from structured payments, and whether the tax advantages matter to you. If you have significant ongoing medical expenses or doubt your ability to manage a large sum carefully, a structured settlement can be helpful. A lawyer can discuss the options with you.
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