Structured Settlement vs Lump Sum

Understanding Structured Settlements vs. Lump-Sum Payments

When you secure a legal victory against a person or a business that has caused you harm, you may be entitled to monetary compensation. This compensation can be delivered in a lump sum, where the entire amount is given at once, or through a structured settlement, where payments are made over a set duration.

Each method of receiving money has its own advantages and disadvantages. You should think carefully about these before deciding which way is best for you.

Defining Lump-Sum Payments

A lump sum is the most straightforward way of receiving the money you’re owed. It involves a single payment where the entire amount is delivered at once.

This onetime payment fully covers what the other entity owes you. In some cases, the settlement may involve a series of lump-sum payments made over time.

Understanding Structured Settlements

A structured settlement involves receiving your compensation in installments over an extended period. For instance, you could receive a specific amount every month for 20 years. These payments are typically tax-free.

Source: The Joint Committee on Taxation

 Structured Settlement Lump-Sum Hybrid

Sometimes, it’s beneficial to use both types of payments — lump sums and structured settlements — to best serve the injured party.

In this scenario, the person might get a substantial first payment to take care of urgent needs and pay bills. After that, they would get a series of smaller payments spread out over time. This arrangement allows them to handle both immediate expenses and secure a steady income for the future.

Examples of Payouts by Case Type

Structured settlements and lump-sum payments each come with their own advantages and disadvantages, and the choice largely depends on the specifics of the case as well as the individual’s personal needs and financial circumstances.

Understanding the nuances of these payment methods in various contexts will help you make an informed decision should you find yourself in a similar situation.

Structured Settlement Cases

According to the National Structured Settlements Trade Association (NSSTA), structured settlements are commonly used in serious personal injury cases. NSSTA explains that structured settlements are particularly good in certain situations.

Structured Settlement examples include:

• Disabilities: Structured settlements can provide consistent financial support over time for individuals with disabilities.
• Guardianship: This could involve children or adults who are considered incapable of managing their own affairs. The steady income from structured settlements can help guardians manage costs.
• Workers’ Compensation: When a worker is injured on the job, structured settlements can help cover their long-term financial needs.
• Wrongful Death: In cases where a family loses a loved one due to someone else’s actions, structured settlements can provide the surviving family members with a regular income.
• Personal Injury: For serious injuries, especially those requiring long-term medical care, to cover living expenses or support a family, structured settlements can provide necessary financial assistance over time.

Lump Sum Cases

Lump-sum payments might be the best option in certain situations. While the choice depends on the specifics of the case and the needs of the individual, there are some general scenarios where lump sums could be preferable.

Lump sum examples include:

• Breach of Contract Cases: These cases typically involve a specific amount of money that was promised but not delivered. A lump-sum payment can effectively resolve the dispute and allow both parties to move on.
• Employment Disputes: Cases involving lost wages, such as wrongful termination or discrimination, often work well with lump-sum payouts, as the amount can be calculated based on past wages and lost future earnings.
• Property Damage Cases: If your property, such as a car or a house, has been damaged, a lump-sum payment can help you repair or replace the property quickly.
• Small Claims: In cases where the settlement amount is relatively small, taking a lump sum is usually easier and more convenient than setting up a structured settlement.
• Divorce Settlements: In some instances, a lump-sum payment can simplify a divorce settlement. This is especially true when one party needs immediate financial assistance or wants to finalize financial ties with their ex-spouse quickly.
• Cases with Less Severe Injuries: If the injury isn’t expected to cause long-term health problems or require ongoing medical care, a lump sum might be more suitable.

Remember, each person’s situation is unique and it’s important to consult with a financial advisor or an attorney before making this decision.

Pros and Cons By Payout Type

It’s important for people to understand the benefits and drawbacks before deciding how they want to receive their money from a lawsuit. This decision can significantly impact your financial future.

Structured settlements can offer long-term financial stability, but it also comes with certain limitations. Let’s delve into the key advantages and disadvantages of structured settlements to help you make an informed decision.

Opting for a lump-sum payment can provide immediate financial relief and control over your funds. However, it also presents certain risks, including the potential for mismanagement and investment losses.

Let’s look at some of the benefits and drawbacks of this choice.

Deciding between a lump-sum payout and a structured settlement is a major decision. By understanding these pros and cons, you can make an informed decision about which option is right for you. Consulting with financial and legal experts can help to guide your choice.

Selling Your Structured Settlement for a Lump Sum

If you’re receiving money through a structured settlement, there may come a time when you need more cash right away than your payments provide.

Maybe you’re faced with surprise bills, or ‌your life circumstances have changed after a costly situation like becoming widowed. You might need to fix up your home or buy a new one, or ‌you need help paying for college.

If you find yourself in these situations, you might consider selling your structured settlement payments. There are companies that specialize in buying these types of payments.

If you’re interested in exploring this option, our trusted partners may be able to help. Please reach out to us to see if we can assist you.