One reason your settlement won’t always come as a single payment is that there are actually several good reasons to structure payments over time instead. If you’ve never had this happen, it’s natural to assume that your personal injury attorney is scaring you about spending your money too fast just to steer you toward the deal he wants, but when does that happen structured settlements become a reasonable recommendation?
The Injury Necessitates Periodic Payments
First, if you’ve been permanently disabled, suffered serious traumatic brain injuries, or dealt with another type of injury that will require you to pay for treatment or management for the rest of your life, then it only makes financial sense to receive payments that mirror those future expenses. After all, does it make more sense to struggle to wisely invest several hundred thousand dollars so you can draw out a few thousand per year to pay for those costs, or simply receive those few thousand per year directly from the insurer? When the injury itself results in periodic expenses, structured payments can make sense.
Federal Taxes Don’t Bite
Another reason comes down to taxes. Interest earned both on the periodic payments and inside the annuity itself is tax free under federal law if you receive a structured settlement as part of a physical injury settlement. Meanwhile, that same settlement received as a lump sum could be invested yourself, but any profit you earn on that investment would be taxed as either capital gains or income depending on the specifics. For larger settlements, the tax benefit alone can actually make sense from a pure dollars retained perspective. Add in the fact that periodic payments prevent you from spending everything at once and structured settlements can often offer benefits.
Insurance Companies Benefit Here Too
It’s not always to the insurance company’s benefit, but they profit from this arrangement as well. Since they pay the annuity once and that annuity pays you over time, the cost of the annuity is almost always less than the insurance company would need to pay in a lump sum settlement to provide you with the same stream of payments. As such, insurance companies will sometimes offer structured settlements as a compromise when there is a gap between what they believe your claim is worth and what you’re asking for. They have more flexibility to increase the nominal value of your settlement when it’s stretched out over a longer period.
Sometimes Personal Injury Attorneys Just Want To Protect You
Lastly, some people simply spend large settlements too quickly. It doesn’t matter whether it’s through foolish investments, pressure from family/friends to give them some of the money, or just straight up buying too many expensive things after seeing a sudden lump sum in your bank account; defendants and attorneys have seen it happen many times over. Structured settlements protect against that. If the risk of financial ruin sounds like you due to poor money management, a structured settlement might be ideal.
Judges like Structured settlements for Minors
Finally, as part of gaining court approval for minor or guardian injuries settlements, judges are often more likely to approve your settlement if the funds are structured. They know these funds need to last, and like the protection from poor spending above, structured settlements are one way to enforce that.
If your situation fits any of the above scenarios, a structured settlement may well be ideal. If not, your personal injury attorney in Murfreesboro may be simply trying to line his own pockets. While there’s no definitive way to tell which before you hire an attorney, knowing when structured settlements make sense can help you know when your personal injury attorney is acting in your best interest by recommending them.