Understanding a structured settlement

In basic terms, a structured settlement is  a financial or insurance arrangement in which periodic payments are made to the  recipient to resolve a personal injury tort claim. It is an alternative to a  lump sum payment, which makes it a popular choice for the plaintiffs and the defendants.  The actual payment schedule will be set up by both parties involved, and can be  tailored to meet the recipient's specific needs.
Structured  settlements can be paid in equal installments, smaller lump sums, or through installments  of varying amounts; whatever proves to be the best for the parties involved.  When the agreement is first set up, the recipient can also take the opportunity  to consider their personal situation and make sure the settlement will cover  their monthly expenses, hazards on the job, current age, and future savings and  investments. There are a lot of benefits to structured settlements for both  parties. However, there are also some drawbacks that should be noted.

Structured  Settlement Benefits

 A structured  settlement represents an opportunity to receive an ongoing income. If the  payments are due to a disabling injury that prevents the recipient from working,  this can be extremely useful. It is also particularly good for people that need  help controlling their spending, and it helps them spend their payments more  effectively.
Other benefits  include a reduced tax obligation compared to what a lump sum payment would  incur, and a reduction in lawyer and court fees. This is one reason why the  insurance companies really prefer structured settlements. If they can settle  the amount outside of court the costs of the lawyers will be much lower, and  they won't have to risk an arbitrarily high amount awarded by a judge.

Structured  Settlement Drawbacks

 While structured  settlements are extremely convenient most of the time, there are still a few  drawbacks that potential recipients should be aware of. First, many people  receiving a structured settlement can start to feel trapped in their payment  schedule and can't deviate from it in any way. This isn't too important until  circumstances change and the recipient needs more money that the monthly payment  will allow.
In other  words, most structured settlements can make it difficult to do things like put  a down payment on a home or a car. Or, if there are sudden medical problems,  the standard monthly payment may not be enough to cover it. In cases like  these, selling  the settlement for a lump sum may be more helpful, if you are able to  manage your funds wisely.

Consider  Your Options

 Deciding  what option you will take in these circumstances will have a large impact on your  financial future. Take the time to discuss the issue with a consultant and find  out if a structured settlement or a lump sum is right for you.