Lawsuit and Claims: Structured Settlement vs. Lump Sum Payouts

Lawsuit and Claims: Structured Settlement vs. Lump Sum Payouts

Feb 16, 2024 | Defense Base Act, Malpractice Lawyer, Personal Injury, Workers' Comp, Workplace Injury

Every year, more than 62 million Americans seek medical attention related to injuries. These include accidents, vehicle crashes, and workplace injuries. Fortunately, if the harm resulted from negligence or wrongdoing by another party, the injured person can seek compensation through the court system.  

A lawsuit award can be dispersed as a lump sum or a structured settlement. There are advantages to each, as well as a few drawbacks. 

This article covers the basics of a structured settlement vs. a lump sum payout. Keep reading to find out which one might be best for your circumstances. 

Advantages of a Lump Sump Settlement

In a personal injury lawsuit, a lump sum payment is a one-time disbursement of compensation. The main reason to choose this option is if you need money immediately. 

For instance, the burden of medical bills or lost income due to injuries can be overwhelming. A lump sum settlement can help get you back on your feet.

The ability to tackle bills could let you avoid dealing with collection agencies and harm to your credit. It could also give you the peace of mind that your debts are settled, so that you can move on with your life. 

Advantages of a Structured Settlement 

Every year, about $10 billion gets paid out to over 30,000 recipients in structured settlements. This is a financial agreement involving periodic settlement distributions over time.

This usually entails setting up an annuity. That is a contract with an insurance company that specifies payout amounts and when they happen.  

One of the main reasons to choose a structured settlement is for tax purposes. A lump sum payout will likely bump you up into a higher tax bracket. This means you will pay a higher percentage (and larger amount) than if it is spaced out over time. 

The main factor to look at is whether the settlement is taxable. This depends on the nature of the damages in the claim

In most instances, compensation for medical expenses, as well as pain and suffering, is not taxed. Most other forms, including compensation for loss of wages, salary, or earning potential, as well as punitive damages, are taxable. There can be situations where a portion of the settlement may be taxed while another amount is not.  

Another main reason to choose a structured settlement is for interest accumulation. The annuity will make money over time, paying you more than the original settlement.  

A final advantage when considering a structured settlement vs. lump sum is that there are often options for how much is paid, how often, and how long. This gives recipients more control over the factors discussed above, including taxable income. 

Learn More About a Structured Settlement vs. a Lump Sum Settlement

Now that you understand the distinctions between a structured settlement vs. a lump sum payout, you can determine which is best for your circumstances. An experienced personal injury attorney can further advise you on the advantages and drawbacks of each option. 

Barnes Law Firm specializes in cases involving the U.S. Defense Base Act, which provides workers compensation for civilian employees injured outside the country under government contracts. Our team of legal experts can help you navigate the complex legal world and get the compensation you deserve.

Reach out to us today to discuss your case.