Structured settlements occur when a person wins a large sum of money in a court case, but the courts or judge allows the money to be paid installments. This is a structured settlement for which the monies are paid to a person or company on a regular scheduled basis. Many times structured settlements occur through the purchase of an annuity, which gives the assurance of future payments.
There are many benefits to structured settlements but the biggest benefit is a tax break for the plaintiff. If the settlement is handled correctly, it may be possible that the plaintiff never pays taxes on the scheduled payments. In the case of a settlement for someone disabled, it may be better for the person to have a regularly scheduled payment than one lump sum. Of course, if the plaintiff is receiving Medicare or Medicaid, the best option is to contact a financial planner that specialized in disability benefits before a settlement is structured.
There are some disadvantages to structured settlements especially for those wishing to invest in a large item, such as a house since they cannot borrow money against a future payment. In some instances, a lump sum settlement is better because the person can take the money, invest it, and end up with more money in the end.
Consider your options carefully before entering into a structured settlement. For instance, for people who have been injured on the job and the company wants to enter a structured settlement with the employee should take into consideration the extent of their injuries. If the injuries are severe and may result in death, obviously, a structured settlement is not in your best interest unless you have a clause stating that the remaining balance upon your death is paid to your estate. This protects you from not receiving all that you have been awarded.