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What to Consider Before Choosing a Structured Settlement

Updated April 29, 2019 | By Wilson Kehoe Winingham staff

Before you can start rebuilding your life after your accident, you may have one more important decision to make regarding the way in which you will receive your settlement money: a lump sum of cash or a structured settlement.

In Indiana, personal injury awards are often paid out in structured settlements, but are they right for you? It’s important for you to make the best choice for your specific case to ensure you receive a full and just amount for all you’ve lost or suffered.

What Is a Structured Settlement?

Structured settlements are paid out as annuities (a set sum you will receive regularly over a set period of time) instead of in one payment for the full amount. The reason people choose this is often because of certain tax advantages. In this arrangement, you would generally receive far more in total cash when all is said and done than if you took a lump sum cash settlement in one payment.

Although you may receive more money overall, there are a number of additional factors you should keep in mind when making this decision:

Lump Sum vs. Steady Payments

If you decide to accept your settlement money in a lump sum, you’ll suddenly find yourself sitting on a huge pile of cash (just like if you were to win the lottery or receive an inheritance). In theory, this might be ideal for you, but you may want to take a step back and think about your level of financial responsibility and know-how to manage money—not to mention taking time to wrap your brain around it. Considering that 70% of people who acquire large sums of money all at once end up broke within a few years, you may end up spending your entire settlement faster than if you had accepted annuity payments.

Tax Complications

Did you know that your earnings awarded through an annuity settlement are tax-free? All personal injury settlement earnings are also tax-free; however, if you were to receive a lump sum and decided to invest your settlement money, any earned interest becomes taxable.

Interest earned in an annuity of a properly structured settlement is not taxable, as it is considered part of the settlement itself.

Payment Terms Are Difficult to Change

One thing to keep in mind is that once the terms of a structured settlement have been decided, it becomes quite difficult to change the payment terms. Dependent on your monthly payment, you may decide at a later date that you need more than you are being awarded each payment date. You can also be at risk for losing eligibility for public funds like Medicaid or Medicare if your structured payments aren’t put into certain qualified funding vehicles like custodial accounts or trusts.

Contact a Personal Injury Attorney Today

There are pros and cons to both a structured settlement or a lump sump payment—just discuss your options with a personal injury attorney.

If you or a loved one have been injured as a result of another person’s negligence, you are urged to contact the Indianapolis Personal Injury Attorneys of Wilson Kehoe Winingham. The lawyers at WKW can help you get the compensation you deserve. Call 317.920.6400 or fill out an online contact form for a free, no-obligation case evaluation.

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