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The Pros and Cons of Structured Settlements

August 11, 2009 Info Articles, Personal Injury

In Indiana personal injury law. large personal injury jury awards and settlement amounts for cases such as brain injuries, spinal cord injuries or medical malpractice are often paid in part by means of a structured settlement. The way structured settlements work can vary, but usually, the paying party purchases an annuity from an insurance company and the injured party receives payments over a period of years. The total amount of the structured settlement is general far more than what the injured party would receive with a straight cash settlement.

This arrangement can have both advantages and disadvantages, and the person receiving the payments has to carefully consider whether or not to accept a structured settlement.

The primary advantage and disadvantage of receiving a lump sum payment are really the same: liquidity. Someone suddenly has a whole lot of cash. Like with winning the lottery, this may or may not be a good situation depending on the level of responsibility and financial knowledge of the person who controls the money. Statistics seem to indicate that most people spend through their lump sum settlements in a far shorter time than they would have received their annuity payments.

The primary advantage of a structured settlement, besides the limitations on profligacy, is the tax-free status of the earnings involved. All PI settlements are tax free, but invest that money, earn interest, and that interest earned is taxable. The interest earned from the annuity of a properly structured settlement is not taxable; it is all considered a part of the settlement.

But there are also disadvantages to a structured settlement. Although this will rarely happen, the future solvency of the paying party has to be taken into consideration. If the paying company goes broke, the victim may be out of luck.

There is also the perception of inflexibility. Once the terms of a structured annuity payment is set, it can be very difficult to change the terms of payment. Also, the fixed payments may not factor in variables like inflation, while they will factor in increased age- risk ratios.

Also, unless the structured payments go into certain qualified funding vehicles, like custodial accounts or trusts, the recipient of the annuity payments may permanently lose the ability to access public funds like Medicaid and Medicare.

All of these decisions should be made with the help of attorneys and accounting staff who have experience in this area. Wilson Kehoe & Winingham has over 30 years of experience dealing in personal injury cases and structured settlements. If you have been injured in an accident and would like a free consultation about your case, please contact us at 1-800-525-8028 or e-mail us at

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