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Have you ever wondered, “What is a structured settlement?” or “How could a structured settlement benefit me?” You’re not alone. Structured settlements are common outcomes in many legal cases. Still, their intricacies can seem complicated if you’re unfamiliar with these financial arrangements.
Life can be unpredictable. One day, you might find yourself on the receiving end of a significant financial payout due to an unforeseen event like an accident or personal injury.
Understanding a structured settlement is important. It enables you to make decisions that fit your financial needs and long-term goals. Doing so empowers you to make informed decisions.
Let’s start with the basics. A structured settlement is a financial or insurance arrangement wherein a person agrees to resolve a personal injury, wrongful death, or workers’ compensation claim by receiving part or all of a settlement in the form of periodic payments over an agreed period rather than as a one-time lump sum.
Structured settlements and lump sum payments are two different methods of compensation. A lump sum provides a significant amount of money all at once, while a structured settlement spreads the payments out over time. This can be particularly beneficial for individuals with long-term financial needs or who might find managing a large sum of money daunting.
They are created primarily to provide a steady income stream for individuals harmed due to others’ negligence or actions. A lump sum payment can be overwhelming and challenging when large sums are involved.
One of the key advantages of structured settlements is the tax benefits they usually offer. According to the IRS, these types of payments are often tax-free, making them a financially prudent choice for many individuals. However, the tax-free status of structured settlements may limit their consideration as income when applying for a mortgage or other types of loans.
Suppose an individual was involved in a car accident and suffered significant injuries. The individual sues the responsible party and is awarded a $1 million settlement over 20 years. Instead of a lump sum of $1 million, the individual would receive $50,000 yearly for 20 years, providing a stable income while recovering or adapting to lifestyle changes due to the accident.
Let’s consider a few other examples to understand better how these settlements work in different scenarios:
If successful, the worker may receive benefits from the employer’s workers’ compensation insurance and the third party’s insurance or through a settlement. In this scenario, the worker gets a settlement of $750,000 over 30 years, with payments increasing by 3% annually to account for inflation.
The settlement provides for monthly payments of approximately $2,631.58, starting from the child’s 18th birthday and continuing for the rest of their life until age 75. It is important to note that the minor child did not have a say in how the settlement was structured.
It is important to note that the monthly payments are life contingent, meaning they will continue for as long as the accountant lives. Life contingent payments are settlement payments tied to the recipient’s life expectancy. If the recipient passes away before the end of the payment period, the payments will cease.
Structured settlements are financial tools designed to provide long-term financial stability to individuals who have suffered harm. In addition, they offer tax benefits and flexible arrangements tailored to the recipient’s needs and provide a means to manage significant compensation awards effectively.
An annuity is a financial product that ensures regular, scheduled payments to an individual over a specified period. This is typically purchased by the party responsible for paying the settlement, like an insurance company, to fulfill its obligation to the recipient. The annuity provides a steady income stream, helping recipients manage their long-term financial needs after a lawsuit or personal injury claim.
This section answers common questions about structured settlements, from defining a structured settlement to its benefits.
A structured settlement is a financial arrangement in which a person agrees to resolve a legal claim by receiving part or all of a settlement in the form of periodic payments over an agreed period rather than as a one-time lump sum. This differs from a lump sum payment, which simultaneously provides significant money.
Annuities are a fundamental aspect of structured settlements. An annuity is a financial product that provides a regular income stream in exchange for a lump sum.
When a settlement is reached in a lawsuit, the defendant or their insurer may agree to pay the plaintiff a sum of money over time rather than one lump sum. To ensure these payments are made on schedule, the defendant or their insurer purchases an annuity from an insurance company.
Selling a structured settlement for a lump sum payment may be possible. Companies like Liberty Settlement Funding and JG Wentworth can facilitate this process.
Your financial situation can change over time, making selling your structured settlement a potential option, but this move should be considered carefully. Liberty Settlement Funding is a trusted industry leader that can provide a lump sum in exchange for future payments, granting you the financial flexibility you need.
If you have questions about structured settlements or need personalized advice, our team of experts is here to help. Contact us today to schedule a consultation and receive professional guidance tailored to your situation. Contact Us.
Dive deeper into the world of structured settlements and learn how they can benefit you. Visit our website to access comprehensive guides, case studies, and resources that will empower you to understand and navigate structured settlements effectively. Visit the Liberty Settlement Funding blog, your ultimate source for information and insights on annuities, structured settlements, and settlement funding. or click here for more information about Structured Settlements
Bara is a highly-regarded expert in the structured settlement and annuity industry, with an impressive background in settlement factoring. Her experience includes key roles at J.G. Wentworth, Peachtree Settlement Funding, and Liberty Settlement Funding, and she is currently a pivotal team member at Fairfield Funding. Bara's expertise covers SEO, SEM, strategic planning, and brand management, while her passion for photography brings a unique visual perspective. Dedicated to staying current in her field and delivering exceptional experiences, Bara is a trusted professional in the industry.