When it comes to receiving compensation for your personal injury case, you may be faced with the decision between receiving a lump sum or structured settlement payments. To be able to make an informed decision that best supports your desired outcome, it is important to understand the pros and cons of each choice. Our goal is to provide you with an understanding of these options to help you navigate this important decision.

Lump Sums: Instant Gratification

A lump sum payment is a single, upfront payment that represents the total amount of your settlement. This means you will receive all available compensation right off the bat, which is advantageous if you want immediate access to these funds. Having this access allows you to address any immediate financial needs or investment opportunities as you see fit, and at the very least will give you a sense of comfort following your personal injury.

Having this flexibility to manage your money however you like can be nice, but it is worth highlighting the importance of managing this money wisely. With such a large amount of money, people tend to make poor financial decisions, which can lead to further financial challenges down the road. Before accepting a lump sum, you really need to think about how you will manage these funds. You may need to seek guidance from a financial professional to come up with a comprehensive plan on how to best utilize and maximize your lump sum payment.

Structured Settlement: Long-Term Security

On the other hand, there is a payment option known as a structured settlement. This option involves spreading out the settlement amount over a period of time, which typically can be structured at your discretion in monthly, quarterly, or even annual installments. While lump sum settlements offer financial freedom, structured payments offer more financial security, as you will be provided with a consistent stream of income over an extended period.

Structured settlements also offer tax benefits. There are tax laws that specifically apply to structured settlements because this form of payout benefits the federal and state governments more than a lump sum. Simply put, the long-term security of structured settlements reduces the burden on public assistance programs, which is not the case with lump sum payments.

While these benefits may sound nice, it is important to also consider the potential disadvantages that come with a structured settlement. One noticeable difference is the lack of flexibility. If, down the line, you are in immediate need of your funds, you may not be able to obtain them. There may also be restrictions on transferring these funds. You should look at this type of settlement as a steady stream of income and not a pool of money.

What Should You Consider When Deciding on a Settlement Structure?

Every personal injury case is different, just as every injured person is unique, and there is a strong chance that the ideal settlement structure for you would be inappropriate for another person injured under fairly similar circumstances.

With that in mind, there are a few things in particular that you should be thinking about during settlement talks so that, once those talks conclude, you can negotiate for the structure that best suits your unique needs. Here is a brief overview of the major topics that a legal professional will likely ask you about if you hire one to help you with your claim.

Expected Long-Term Medical Bills

Different types of injuries require very different types of treatment. Consider, for example, the difference between putting your arm in a cast so a transverse fracture can heal naturally over several weeks and receiving intensive surgery to correct a complex injury that involves multiple fractures. Of course, various treatment options also have different short-term costs as well as different expectations for likely follow-up care.

It is important to understand and consider both types of expenses when deciding whether it is more valuable for you to settle for a large sum of money now or a steady stream of money later.

Possible Loss of Working and Earning Capacity

Similar to medical expenses, loss of work income can also vary dramatically from case to case, depending on whether your injury will heal completely over time or require continued care for years to come. If your injury is likely to be fully resolved within a few months of your accident, a lump sum settlement might be sufficient to cover all your losses during the finite period in which you are unable to work. However, if your injury will permanently reduce your income potential or cause you to lose your job, a structured settlement may be a better way to distribute your compensation, allowing you to support yourself while you regain stability.

Current Financial Needs and Obligations

Sometimes, what might happen in the future is not as important as what is happening imminently, especially if you already have a lot of outstanding debts by the time a prolonged settlement process concludes. If you have urgent financial needs and can responsibly manage a lump sum, that option might be better than allowing those debts to accrue further interest and penalties while you receive your settlement over a long period.

How Much Is the Total Settlement Worth?

Conversely, when negotiating a personal injury settlement, you should dedicate serious thought to how you handle money in general because, as many people learn the hard way, it is one thing to imagine what you might do with a massive amount of money and another thing to have that money available to you. Sometimes, structured settlements are simply the best way to ensure that crucial financial resources will be there when you need them, or, in some cases, to ensure that a defendant without enough assets on hand to pay your entire settlement in a lump sum can eventually get you the restitution you deserve.

Our Injury Attorneys Prioritize Your Best Interests

When deciding between a structured settlement and a lump sum payment, it is important to consider all the unique circumstances of your case as well as your financial goals. Outside of this guide, there are extensive considerations to go through before making this big decision. Our attorneys can offer you invaluable guidance in navigating the complexities of personal injury settlements. Your rights are our priority.

If you or anyone you know would like to speak with an attorney, we invite you to reach out for a free consultation. We look forward to helping you choose the settlement option that best aligns with your financial well-being.