Did you know that settlement funding companies have a market size of $717 million? When you are looking to get a settlement, you should have options to choose from. Most people opt for a structured settlement payment because of the many benefits they have to offer down the line.
Read on to learn about everything you need to know about structured settlements.
Table of Contents
What Is a Structured Settlement?
What are structured settlements? Structured settlements refer to when a civil lawsuit results in someone or a company paying money to fix a wrong. The ones who are responsible for righting a wrong can agree to their own settlement. In some cases, they may get forced to pay the money instead.
A small amount of money could lead the wronged to decide on a lump sum settlement. Structured settlements get arranged when the sum is larger. This leads to money getting put into an annuity that guarantees payments over time.
When the money is spread out over time, the financial security for the future is better. Single payouts generally get spent faster. Make sure you check out this company that provides structured settlements.
How Do Structured Settlements Work?
The two legal settlement options are a lump sum that gets paid once or through a structured settlement where periodic payments get made. The major difference between the two one is better for long-term financial security and tax purposes.
If a lump sum is decided on, it may be subject to taxes because of the interest and dividends earned. With an annuity, income gets provided throughout the lifetime of the recipient. The interest and taxes become tax-free over time.
Structured Settlement Benefits
There are many benefits of structured settlements including the payments being tax-free. These payments can get scheduled for any length of time and often begin immediately. However, some recipients may choose to defer their payments for years.
If you want to get a lump sum payout in the future, the amount may increase because of the benefits. Another advantage of structured settlements is that the beneficiary continues to receive tax-free payments if the recipient dies.
The biggest benefit that we’ve dabbled on in this article is that structured settlements guarantee a future income. This is great for those who tend to run through money when they have it. Because you aren’t receiving a lump sum, your temptation to make a large purchase decreases.
Spread out payments are also helpful for those who have a medical condition that requires long-term care. These payments will not fluctuate as mutual funds and stocks do. The payments are always guaranteed by a professional insurance company that issued the annuity in the first place.
Although it is tempting to opt for a lump sum instead of structured settlements, it is not recommended. In the end, you could be receiving more than the initial lump sum payout because of the interest the annuity earns over time.
Understanding Structured Settlements
Understanding structured settlements is not a hard concept to grasp. If you have been harmed by an individual or company, you may be entitled to a structured settlement. The most important thing to remember is that receiving these spread out payments can help you stay financially stable and lead to more money in the end.
Keep coming back for more articles about personal finance.
