Welcome to the Structured Settlement Guide!
Structured Settlements are a relatively new phenomenon in the financial world – in short, they’re payments of one sort or another (for example, court-awarded compensation) staggered in increments over a period of time. There are companies who would like to buy structured settlements for a lump sum (they see them as investments), and there are people who would like to sell their structured settlements, and receive a lump sum. Read on to find out more…
If someone is injured either physically or emotionally because of another person’s actions, they may file a lawsuit. Often, if the probability of the plaintiff winning is high then the defendant will choose to settle out of court. In addition, if a case goes to trial and the plaintiff wins, the court will require the defendant to pay a settlement. Although it is occasionally given to the plaintiff in one lump sum, the majority of the time the plaintiff will suggest paying in installments. This method of paying a settlement is called a “structured settlement.”
There are several advantages to setting up structured settlements. It is easier to be sure that the full amount is paid in the long run because it is usually set up in an annuity account. An annuity is a type of life insurance. Moreover, the defendant will be more likely to have the smaller amounts paid in each installment than to be able to pay the entire settlement amount at one time. The timing of the structured settlements is part of the negotiations between the plaintiff and the defendant. The interval for the settlement payments can be set up in any way. Some options are monthly, bimonthly, weekly, biweekly, or even yearly.
Using structured settlements may also prove advantageous with regards to tax payments. Since the amounts are smaller, they are not taxed as heavily as larger sums. Sometimes the money in structured settlements will be completely tax-free. There are other financial benefits to choosing structured settlements over a lump-sum settlement.
If a person chooses to take a lump-sum settlement, they will need to invest it. The problem with this requirement is that investing wisely takes a great deal of experience and savvy. The average person would probably not have the know-how to invest successfully. As a result, some of the money from the settlement will have to be paid to a financial adviser. The fees for this service are often expensive.
For those who have special needs or are not old enough to handle the money themselves, structured settlements allow a significant amount of protection. For minors, structured settlements can help cover expenses throughout the child’s life. Some of the money can be set aside toward a college fund as well. Those payments from structured settlements also make it easier for those who struggle with handling money hold on to the settlement longer. There are statistics that show lump sums are spent within five years. Sometimes they are spent within a couple of months.
Although structured settlements have many benefits surrounding them, there are some definite disadvantages as well. Plaintiffs may want immediate relief from the injury or emotional stress an incident has caused. If the lawsuit was because of an injury, then waiting for structured payments may not be the best idea. This is because the cost of medical treatments continues to rise and the hospital or other medical service providers will not wait until the plaintiff has the money from the settlements. In this case, a lump sum settlement will probably be a better way to go. There is also a disadvantage for insurance companies who pay out for structured settlements. It does not look good for the insurance companies to have too many structured settlements that need to be paid out.
Structured settlements can be very useful for both plaintiff and defendant in a lawsuit. For the plaintiff, it can help control the money and give tax relief. However, there are plenty of disadvantages as well. Both parties wishing to enter into a settlement need to do so after careful consideration of the facts.
Whatever your interest in structured settlements – buying, selling or research – the Structured Settlement Cash Guide is your one-stop resource. We cover every structured settlement topic imaginable – from finding a structured settlement broker, to the finer points of the cash flow notes business.
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