A lump sum payment or a structured settlement are likely your two options when filing a personal injury claim and collecting compensation for your injuries. But most people do not know the difference between the two. When you receive a lump sum payment, the entire amount owed to you is given to you all at once. Structured settlements are guaranteed payouts, distributed over a set amount of time. It depends on your situation, but both have its benefits and disadvantages.
You may even be able to negotiate a hybrid settlement in some cases, which would combine a lump sum payment and a structured settlement. Whatever choice you select, it will either be the negligent party's personal obligation to pay or the insurance provider's responsibility.
Retaining an experienced personal injury attorney will increase your chances of getting the highest amount of compensation while negotiating your personal injury settlement. Brandon J. Broderick, Attorney at Law has decades of experience. Call us today if you need help with your case.
We will explore both options in more detail, along with the advantages and disadvantages of each kind of payout.
When you obtain compensation for your injuries in a lump sum settlement, the agreed-upon total will be paid in one payment. So, for example, if you are due $500,000 in compensation, you will get the full amount all at once. Depending on a variety of variables, this may have both advantages and disadvantages.
Usually, lump-sum settlements are chosen when there are no long-term injuries that necessitate continuous medical treatments or payments for lost income, which is typical in cases with life-altering injuries or wrongful death. Therefore, in these situations, a lump payment would pay off any additional damages that were required in the settlement along with the current expenses they had accumulated due to the injury, thus closing the case.
Before agreeing to a lump sum settlement, keep the following in mind:
- Pay Off Everything — If there is a lot of debt related to your injuries that are immediately due, a lump sum settlement can assist in paying off those debts entirely so that worry is gone.
- Pay Off Other Bills - In the event that your settlement exceeds the amount necessary to cover your injuries and medical expenses, you are free to utilize the excess money to settle any other debts you may be currently carrying, such as a mortgage or an auto loan. This can lower your monthly expenses and help you save money on interest.
- Investing Excess Money - The final benefit is that you can invest the excess portion of your settlement toward growing your financial situation. This could be by starting a business, or investing in stocks or real estate. You don't have to worry about taxes because your initial payment is legally completely tax-free, but you will have to pay taxes on any additional gains you make from investing that settlement money.
- Unexpected Expenses - If you spend the entire settlement sum too fast, and discover later that you require further medical treatments related to the accident, you may not have enough money left to cover those costs. Instead, you would have to pay out of your own pocket. You should be completely aware of the potential costs of medical bills when selecting how to allocate your compensation package.
- Losing Money With Investments - Not all investments will succeed, and if it happens to you, this could result in you losing the extra money you were paid in your settlement. Sometimes markets decline or your new business could fail, and as a result, the additional funds you had are lost.
Structured Settlement Explained
Structured settlement payments involve distributing your compensation over a defined length of time. In this type of settlement, you could receive payments on a monthly, quarterly, or annual basis. Every injury settlement is unique and will have unique terms, but structured settlements are usually chosen when the injured party will have continuing medical costs or would experience lost income as a result of the injuries.
Structured settlements are a simple way for the injured party to make sure they have the money they need when bills arise because of continuing medical costs or income loss. One of the most popular options, because it is the most manageable financially, is monthly payments.
The following are some of the primary benefits and drawbacks of structured settlements:
- Consistent Income - If you have ongoing medical expenses to pay for, having consistent money flowing into your account can greatly reduce stress. Knowing a check is on the way to pay the costs associated with your injuries enables you to budget your money wisely and ensures that no bills associated with your accident go unpaid.
- Easy to Budget - Not everyone is adept at setting up financial budgets, particularly when we have a sizable amount of extra cash at our disposal. These budgeting concerns disappear once you receive a structured settlement. Set aside the necessary sum to cover your anticipated expenses, then anything extra can be used for anything else you need or want.
- Lessen Impact of Poor Investments - If you decide to make an investment that doesn't work out, you will have another check coming. This gives you additional financial security in that regard. Just be careful to avoid making the same error with subsequent settlement checks, and always confirm that your injury-related costs are completely covered before making any investments.
- Unexpected Expenses - You cannot request more funds from your settlement to pay any unforeseen expenses. These settlements are legally binding agreements that can't be modified because you need money now. This puts you at a minor disadvantage because a lump payment would have made it easier for you to deal with this problem.
- Cannot Access Total Funds - There are occasions when you may wish you had access to the entire sum. Maybe, you wanted to put a down payment on a home or a car, or you have unexpected medical bills. You will not have access to the remaining assets in a structured settlement until the day that they are distributed in accordance with your contract.
- Limited Investment Availability - With payments, your capacity to invest the total amount of your settlement is not possible. Instead, you will have much less to work with, if you plan to invest the extra funds.
In a hybrid settlement structure, your compensation is combined between a lump sum and recurring payments, which is sometimes set up in some cases. Since personal injury cases can take time, sometimes a hybrid settlement is agreed upon because the injured victim may have significant bills that are due immediately.
These debts must be settled in full right away, and additional ongoing expenses will be owed for ongoing medical care or lost wages. This can help relieve financial stress and allow the injury victim to budget the settlement easier.
Since your settlement money is not seen as income, the government typically does not tax it. It's important to remember that this exemption does not apply to profits produced utilizing the additional settlement cash and that it may not apply to certain settlements depending on the nature of the dispute. Let's imagine you invest your settlement money in the stock market and sell your shares at a 50% profit after a significant jump in stock prices. The profit generated from those gains is still subject to regular capital gains tax.
Consult With Brandon J. Broderick For Advice
Give us a call at Brandon J. Broderick, Attorney at Law if you have any questions about the best form of settlement plan for your specific injury case. Our injury lawyers would be pleased to speak with you and assist you in determining the best type of settlement for your needs.
We strive to assist our clients in returning to their everyday lives as quickly as we can. Every case we accept has great significance to us, and every case is handled as if it were the most important case because, after all, it is the most important matter for you. We want our clients to believe that we did everything possible to assist them.
Call us today for a free case consultation with the top personal injury lawyers in New Jersey, New York, Connecticut, and Pennsylvania.