In many personal injury and accident cases, the case is resolved prior to trial through a “settlement.” This is some agreement in which the plaintiff agrees to dismiss the case in exchange for payment from the defendant or the defendant’s insurance company. Both sides must agree to the settlement and execute paperwork indicating the terms of the agreement. The amount paid by the defendant for the settlement can either be paid in one lump sum or it can be paid out in periodic payments (known as a “structured settlement.”)
A “structured settlement” is a schedule of payments that are paid out to a plaintiff over a period of years or even a lifetime. Structured settlements are funded by the purchase of an annuity by a defendant from a structured settlement broker. These brokers are regulated by state insurance commissions. The annuity then pays out to the plaintiff a continuous stream of income over the term of the structured settlement. A lump-sum payment can be combined with a structured settlement, particularly in cases where there are immediate expenses that need to be covered.
The Pros of a Structured Settlement
- Tax Benefits – Personal injury settlements are considered “tax-free” under the U.S. Tax Code.
- Facilitates Settlement – Sometimes the possibility of a structured settlement can help facilitate settlements as a structured settlement annuity usually costs less for a defendant than an upfront lump-sum payment.
- Certainty – Annuities offer plaintiffs set payments they can rely on to meet ongoing expenses.
- Flexibility – Annuities can be tailored to cover specific plaintiff needs and future contingencies.
The Cons of a Structured Settlement
- Tax Penalties – Portions of any personal injury settlement may possibly be taxed including punitive damages, purely emotional damages not arising from physical injury, and some attorney’s fees.
- Uncertainty – Changes to the economy including inflation and recession could impact the spending power of structured settlement payments.
- Lesser Cost to Defendant – Annuities generally cost a defendant less than an upfront, lump-sum payment. This can help facilitate settlement discussions, but is also information that a plaintiff should know when considering whether or not to accept a settlement offer. Whenever a structure is proposed by a defendant we require that our broker must participate in the sale of annuity which assures us direct reporting of the actual real cost of the instrument and the markets available offering the best payouts for a given amount. We only use carriers with the highest ratings and long-term history of financial strength and stability which is essential when there is a life-time payout schedule.
The terms of a settlement are one of the most important aspects of a personal injury case. You need lawyers who can help you navigate through this complex process and make the best choice for your individual situation. Our lawyers will work to get you the maximum settlement possible. Contact us online at www.alexanderlaw.com or call our San Jose or San Francisco office at 888-777-1776 to speak personally with one of our knowledgeable and experienced attorneys about your case.
