Personal injury settlements are often reached before going to trial. They typically involve a monetary payment from the defendant to the plaintiff in exchange for an agreement to cease all further legal action. Such payments generally come in two forms: lump sums or structured payouts.

A structured payout, or structured settlement, can provide regular payments to the plaintiff over an extended period of time, even the lifetime of a plaintiff if the settlement is large enough. These arrangements can be ideal for people who have suffered catastrophic injuries and are unable to work as a result. Structured settlements are often funded by a defendant’s insurance company and placed into an income-producing annuity.

Annuities are complex investment vehicles that carry various tax considerations, and it’s strongly recommended that plaintiffs consult with a qualified personal injury attorney, tax attorney, or certified public accountant prior to accepting any structured settlement offer. Let us share a few more tips that you may want to know going forward:

  • Personal injury settlements are usually tax-free, although some exceptions apply, such as punitive damages and interest accrued from invested settlement funds.
  • Structured settlement annuities can be designed to cover a plaintiff’s specific circumstances, like disability needs, and any number of future contingencies.
  • Most states have insurance laws that guarantee an insurance company’s annuity obligations will be covered on behalf of an injured person. 
  • Plaintiffs should be aware that unknown changes to the economy, like a recession, could negatively impact settlement payments stemming from invested annuities. 
  • A personal injury defendant may be more willing to settle a claim if a plaintiff is willing to accept a structured settlement, as they typically cost insurance companies less than lump-sum settlements.
  • Lump-sum payments can be combined with structured settlements to provide for immediate expenses, such as medical bills, debt relief, and rehabilitation costs.

Keep in mind that a structured settlement isn’t right for everyone. Lump sum payments may be better suited for cases involving children, for example, as they allow for long-term investing. Lump sums are also advantageous for those suffering from a debilitating injury and requiring immediate medical expenses. 

If you or someone you know has been injured in an accident, do not wait to contact an experienced, local personal injury attorney. You are welcome to contact us 24/7 for a free case evaluation to discuss your case, learn more, and determine whether a structured settlement is right for you.