How Does a Structured Settlement Work and Is It Beneficial?
What is a structured settlement? How does a structured settlement work? What are the benefits?
If you’ve been asking questions like these, we have good news for you. You’ll find the answers in this guide.
Note that this article is not intended as official legal advice. It is, however, an unbiased, educational guide to help you understand structured settlements as a payout option for any lawsuit you might be engaged in. This information could be very important for maximizing the overall benefits of your settlement.
Keep reading to learn all you need to know about structured settlements.
Table of Contents
What Is a Structured Settlement?
The “structure” of a structured settlement refers to the manner in which the compensation is paid/received. It’s a description of a particular payout option for the lawsuit.
You see, in some settlements, the compensation is awarded in a single lump sum. A structured settlement, though, compensates the plaintiff via multiple smaller payments according to the agreed-upon payment schedule. These payments continue until the full amount is paid, often over the course of many years.
How Does a Structured Settlement Work?
Deciding on a structured settlement is part of the settlement negotiations. This includes the specific details of the plan, such as the number/amount/frequency of the payments.
As we mentioned above, the payments could span the course of several years. Other times, though, there are very few payments paid according to a much shorter timeline.
Both the plaintiff and the defendant must agree to the plan. Thus, these negotiations can be very complicated and lengthy.
The payments themselves are called annuities because they differ from other types of payments/payment plans. That is, they are regulated by different laws than income, loan repayments, and other structured financial products.
What Are the Benefits of a Structured Settlement?
The main benefit of a structured settlement is that it’s customizable. The best structured settlement companies can negotiate a payment plan that works out best for everyone.
Furthermore, the compensation awarded in any personal injury settlement is typically not taxed. Thus, receiving this money via a series of payments is like having a reliable stream of tax-free income.
This also makes it easier to spend the money only when it’s needed for its intended purpose, like medical bills or funeral arrangements. When the money is received as one lump sum, it’s quite easy to spend it too fast. Then, the recipient will quickly have nothing left of this money, even if they still need it.
Benefits For the Payee
Often, the annuities work out better for the payee as well. For one thing, they don’t have to pay an enormous amount all at once.
In fact, even if they have enough to pay the lump sum, it’s better not to. For instance, after each annuity is paid, whatever remains in the payee’s account can continue earning interest until the next payment is due.
Is a Structured Settlement Right For You?
How does a structured settlement work? Now that you know, use this knowledge to your advantage. If you ever find yourself involved in a lawsuit, remember this guide.
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