Important choices and decisions fill lawsuits. Of which, one of them is deciding how you will have your settlement payment disbursed.
Should you take the full payment at once? Split your funds into set payments? What are the implications of either choice?
In this article, we will touch on both options but delve more into structured settlements. Keep reading to learn the key things you must know about how structured settlements work.
You will need to choose between a structured settlement or taking the full payment at one time upon the completion of your lawsuit. With a structured settlement, the party will receive predetermined amounts at predetermined intervals over a specific length of time. Once decided upon, the specifics of the structured settlement can’t be changed.
Steps to a Structured Settlement
1. The plaintiff sues for damages, injuries, or wrongful death. Many times the defendant will choose to settle before trial and agree to a structured settlement.
2. A qualified assignee, someone who has experience with structured settlements and works with lenders, will determine the term of the settlement. The terms of the settlement include how much the payments will be, frequency of payout, if there will be any larger sums included, and more.
3. An annuity is purchased. The qualified assignee buys the annuity from a life insurance company. Once completed, the terms are set in stone.
4. The life insurance company makes the payments to the plaintiff. The amount of the annuity will accrue interest, but it is not possible to pull cash out of the structured settlement without selling future payment rights to a third-party company.
Structured Settlement Annuity Companies
The structured settlement company that issues the payments is able to protect the plaintiff’s ability to qualify for different forms of aid. For example, structured settlement payments do not factor into income amounts when applying for government assistance programs like Medicaid or food assistance.
Payments from structured settlements are also tax-free, which is another reason that many people choose this option over a lump-sum.
Some people may also find the idea of structured settlements worrisome because of the uncertainty about what will happen if they pass away before receiving all of their payments. In the event that this happens, an assigned beneficiary will receive all future payments that are due.
Choosing a Structured Settlement
Making the decision between taking your full settlement payout at once or going with a structured settlement can feel a bit overwhelming. The pros of going with a structured settlement typically outweigh the cons.
A major pro to many people is the guaranteed income that is tax-free and continuously accruing interest.
Even with the rigidity of the payment terms, having the option to sell your rights to future payments to a company in exchange for receiving a lump sum can remove that part of the equation in your decision-making process.
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